<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual report pursuant to Section 13 or 15(d) of the Securities
- - --- Exchange Act of 1934 For the fiscal year ended March 31, 1995
--------------
- - --- Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ______________ to _______________
Commission File No. 1-7521
------
FRIEDMAN INDUSTRIES, INCORPORATED
------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 74-1504405
------------------------ ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4001 Homestead Road, Houston, Texas 77028
----------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 672-9433
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -----------------------
Common Stock, $1 Par Value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months and (2) has been subject to the
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
Yes X No
----- -----
The aggregate market value of the Common Stock held by
non-affiliates of the registrant as of June 6, 1995 (computed by reference to
the closing price on the American Stock Exchange on such date), was
approximately $13,833,000.
The number of shares of the registrant's Common Stock
outstanding at June 6, 1995 was 5,832,195 shares.
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders of Friedman
Industries, Incorporated for the fiscal year ended March 31,
1995 - Part II.
Proxy Statement for the 1995 Annual Meeting of Shareholders -
Part III.
PART I
Item 1. Business
Friedman Industries, Incorporated (the "Company"), a Texas
corporation incorporated in 1965, is in the steel processing and distribution
business. The Company has two product groups: coil processing (steel sheet
and plate) and tubular products. In fiscal 1994, the Company discontinued the
operations of its wholly owned subsidiary, Royal Fasteners Corporation, which
was engaged in the marketing of fastener products.
Significant financial information relating to the Company's
product and service groups for the last three years is contained in Note 8 of
the Company's Consolidated Financial Statements appearing on page 11 of the
Company's Annual Report to Shareholders for the fiscal year ended March 31,
1995, which is incorporated herein by reference elsewhere in this report.
Coil Processing
The Company purchases domestic and foreign hot-rolled steel
coils, processes the coils into steel sheet and plate and sells these products
on a wholesale, rapid-delivery basis in competition with steel mills, importers
and steel service centers. The Company also processes customer-owned coils on
a fee basis. The Company has coil processing plants located at Lone Star,
Texas, Houston, Texas and Hickman, Arkansas. At each plant the steel coils are
processed through a cut-to-length line which levels the steel and cuts it to
prescribed lengths. At the Houston facility, the steel is passed through a
2-Hi rolling mill which, in a cold process, improves surface quality and
imparts a higher degree of flatness. The Company's Lone Star facility operates
a coil-to-coil, 2-Hi rolling mill, which is designed to uncoil material, pass
the material through the rolling mill and recoil the material so that it may be
stored in coil form. The Company's processing machinery is heavy, mill-type
equipment capable of processing steel coils weighing up to 25 tons. Coils are
processed to the specifications required for a particular order. Shipments are
made via unaffiliated truckers or by rail and, in times of normal supply and
market conditions, can generally be made within 48 hours of receipt of the
customer's order.
At its Lone Star facility, the Company receives hot-rolled steel
coils primarily from Lone Star Steel Company ("LSS"), which is located
approximately four miles from the Company's plant. The Lone Star plant
receives its supply of steel from LSS and other suppliers at competitive prices
determined at the time of purchase. During fiscal 1995 and 1994, the Company
received approximately 80% and 74%, respectively, of its tonnage for the Lone
Star facility from LSS and was able to purchase sufficient tonnage at
competitive prices from other suppliers to meet the requirements of this
facility. Loss of LSS as a source of coil supply could have a material adverse
effect on the Company's business.
At its Houston facility, the Company warehouses and processes
hot-rolled steel coils, which are generally purchased on the open market at
competitive prices from importers, trading companies and domestic steel mills.
The Houston facility has primarily relied on domestic steel mills as a
significant source of steel coils in recent years.
At the Company's Hickman facility, the Company warehouses and
processes steel coils which are purchased primarily from Nucor Steel Company
("NSC"). NSC is located approximately one-half mile from the Hickman facility.
Loss of NSC as a source of coil supply could have a material adverse effect on
the Company's business.
At the Lone Star facility, the Company maintains three
cut-to-length lines and a coil-to-coil 2-Hi rolling mill. This equipment is
capable of processing steel up to 84 inches wide and up
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to one-half inch thick. At the Houston facility, the Company has a
cut-to-length line and a rolling mill that are capable of processing steel up
to 90 inches wide and up to one-half inch thick. The Hickman facility operates
a cut to length line which has 84 inch wide and one-half inch thick capacity.
Tubular Products
Through its Texas Tubular operation in Lone Star, Texas, the
Company purchases, markets, processes (e.g., sorting, end-beveling, threading,
etc.) and manufactures tubular products.
The Company processes its own tubular products and processes
pipe on a fee basis for one major customer, LSS. Pipe processing equipment
employed by this operation includes nine threading machines, six cutoff and
beveling machines, pipe handling equipment and other related machinery. This
machinery can process pipe up to 13-3/8 inches in outside diameter.
In May 1990, the Company purchased a pipe mill and related
equipment, which was installed at the Company's Texas Tubular operation, and,
in April 1991, began manufacturing pipe. The pipe mill is capable of producing
pipe from 2-3/8 inches to 8-5/8 inches in outside diameter. In March 1992, the
pipe mill was API-licensed to manufacture line and oil country pipe. The pipe
mill also manufactures pipe for structural and piling purposes that meets
recognized industry standards. The Company currently manufactures and sells
substantially all of its line and oil country pipe to LSS pursuant to orders
received from LSS, and in exchange therefor LSS sells to the Company pipe for
structural applications for some sizes of pipe that are beyond the capability
of the pipe mill.
In June 1990, the Company and LSS entered into an informal
arrangement for the supply of pipe to the tubular operation. The Company can
make no assurances, however, as to the amounts of pipe and steel coils that
will be available from LSS in the future or amounts of tubular products that it
will be able to process for LSS in the future. Loss of LSS as a source of
supply or as a customer could have a material adverse effect on the Company's
business. A summary of tubular operations is provided in Note 8 of the
Company's Consolidated Financial Statements incorporated herein by reference.
Marketing
The following table sets forth the approximate percentage of
total sales contributed by each group of steel products during each of the
Company's last three fiscal years:
Product Groups 1995 1994 1993
- - -------------- ---- ---- ----
Coil Processing 65% 61% 64%
Tubular Products 35% 39% 35%
Fastener Products -- -- 1%
Coil Processing (Steel Sheet and Plate). The Company's products and
processing services are sold to approximately 330 customers located primarily
in the midwestern, southwestern and southeastern sections of the United States.
The Company's coil processing products and services are sold principally to
steel distributors and to customers fabricating steel products such as storage
tanks, steel buildings, farm machinery and equipment, construction equipment,
transportation equipment, conveyors and other similar products. During each of
the fiscal years ended March 31, 1995, 1994 and 1993, four customers accounted
for approximately 25% of the Company's sales of these products. No sheet and
plate customer accounted for as much as 10% of the Company's total sales during
those years. Sales by the Company to any one industry did not exceed 40% of
total sales in fiscal 1995.
The Company sells substantially all of its steel coil products through
its own sales force. At March 31, 1995, the sales force consisted of a vice
president of sales and five inside salesmen. The vice president of sales
supervises the sales department and performs the duties of an inside salesman.
The inside sales force handles mostly telephone orders from customers.
Salesmen are paid on a salary and
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commission basis with the rate of commission depending upon the tonnage shipped
to the salesman's customers in a particular month.
Shipments of particular products are made from the facility offering
the product desired. If the product is available at more than one facility,
other factors such as location of the customer, productive capacity of the
facility and activity of the facility enter into the decision regarding
shipments. The Company regularly contracts on a quarterly basis with many of
its larger customers to supply minimum quantities of steel.
Tubular Products. Tubular products are sold nationally to
approximately 240 customers. Sales of tubular products were made primarily to
steel and pipe distributors, to piling contractors and to LSS. Sales of pipe
to LSS accounted for approximately 11% of the Company's total sales in fiscal
1995.
The Company sells its tubular products through its own sales force,
which includes two inside salesmen and one manager. Salesmen are paid on a
salary and commission basis.
The Company processes its own tubular products and processes pipe for
one major customer, LSS, on a fee basis.
Employees
At March 31, 1995, the Company had approximately 106 full-time
employees of whom eight were executive officers, seven were salespersons, nine
were administrative and clerical workers, 14 were supervisors and approximately
68 were skilled and semi-skilled operators.
Competition
The Company is normally engaged in a non-seasonal, highly competitive
business. The Company competes with steel mills, importers and steel service
centers. The steel industry, in general, is characterized by a small number of
extremely large companies dominating the bulk of the market and a large number
of relatively small companies, such as the Company, competing for a limited
share of such market. The large companies and many of the small companies
possess resources substantially greater than those of the Company.
In the opinion of management, the competitive position of the Company
in times of normal supply and market conditions is dependent upon its ability
to offer steel products at prices competitive with or below those of other
steel suppliers, as well as its ability to provide products to customer
specifications on a rapid delivery basis.
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Executive Officers of the Company
The following table sets forth the name, age, officer positions and
family relations, if any, of each executive officer of the Company and period
during which each officer has served in such capacity:
<TABLE>
<CAPTION>
Position, Offices with the Company
Name Age and Family Relations, if any
---- --- ----------------------------
<S> <C>
Jack Friedman 74 Chairman of the Board of Directors and Chief Executive Officer since 1970,
Director since 1965, brother of Harold Friedman
Harold Friedman 65 President and Chief Operating Officer since 1975, Executive Vice President from
1973 to 1975, Director since 1965, brother of Jack Friedman
Ronald Burgerson 56 Vice President since 1974
Thomas Thompson 44 Vice President - Sales since 1990
Benny Harper 49 Vice President since 1990, Treasurer since 1980 and Secretary since May 1992
William Crow 48 Vice President since 1981, President of Texas Tubular Products Division since
August, 1990.
Ted Henderson 67 Vice President since 1985
Dale Ray 49 Vice President since 1994
</TABLE>
Thomas Thompson was elected a vice president in August 1990. Prior
thereto, Mr. Thompson supervised the inside sales function of the Company for
more than five years.
Dale Ray was elected a vice president in March 1994. Prior thereto,
Mr. Ray was a plant manager at the Company's Lone Star facility for more than
five years.
Item 2. Properties
The principal properties of the Company are described in the following
table:
<TABLE>
<CAPTION>
Approximate Type of
Location Size Ownership Construction
- - -------- -------------- --------- ------------
<S> <C> <C> <C>
LONE STAR, TEXAS
Plant-Coil Processing 42,260 sq. feet Owned (1) Steel frame/siding
Plant-Texas Tubular Products 76,000 sq. feet Owned (1) Steel frame/siding
Offices-Coil Processing 1,200 sq. feet Owned (1) Steel building
Offices-Texas Tubular Products 3,500 sq. feet Owned (1) Cinder block
Land-Coil Processing 13.93 acres Owned (1) --
Land-Texas Tubular Products 67.77 acres Leased (2) --
LONGVIEW, TEXAS Offices 2,100 sq. feet Leased (3) Office Building
HOUSTON, TEXAS
Plant and Warehouse-Coil Processing 70,000 sq. feet Owned (1) Rigid steel frame
and steel siding
Offices-Coil Processing 4,000 sq. feet Owned (1) Brick veneer;
steel building
Land-Coil Processing 12 acres Owned (1) --
</TABLE>
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<TABLE>
<S> <C> <C> <C>
HICKMAN, ARKANSAS
Plant and Warehouse-Coil Processing 25,000 sq. feet Owned (1) Steelframe/siding
Offices-Coil Processing 1,200 sq. feet Owned (1) Cinder block
Land-Coil Processing 20 acres Owned (1) --
</TABLE>
______________________
(1) All of the Company's owned real estate, plants and offices are held in
fee and are not subject to any mortgage or deed of trust.
(2) The real estate lease is with LSS and its affiliate, Texas & Northern
Railway, Inc., and expires August 31, 2010. The lease provides for
monthly payments of $1,667 adjusted each January 1 for changes in the
Consumer Price Index. The Company has an exclusive option to purchase
this property during a 60-day period beginning May 1, 1998 for
$214,238.
(3) The office lease is with a nonaffiliated party, expires October 31,
1996, and provides for an annual rental of $19,869.
All of the Company's facilities are in good condition and adequate for the
Company's present operations.
Item 3. Legal Proceedings
The Company is not a party to, nor is its property the subject of, any
material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder
Matters
The Company's Common Stock is traded principally on the American Stock
Exchange (Symbol: FRD).
Reference is hereby made to the sections of the Company's Annual
Report to Shareholders for the fiscal year ended March 31, 1995, entitled
"Description of Business--Range of High and Low Sales Prices of Common Stock"
and "Description of Business--Dividends Declared Per Share of Common Stock",
which sections are hereby incorporated herein by reference.
The approximate number of shareholders of record of Common Stock of
the Company as of May 19, 1995, was 800.
The Company intends to continue the payment of cash dividends although
future dividends will depend on the Company's earnings and financial needs and
on other factors.
Item 6. Selected Financial Data
Information with respect to Item 6 is hereby incorporated herein by
reference from the section of the Company's Annual Report to Shareholders for
the fiscal year ended March 31, 1995, entitled "Selected Financial Data".
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Information with respect to Item 7 is hereby incorporated herein by
reference from the section of the Company's Annual Report to Shareholders for
the fiscal year ended March 31, 1995, entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
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Item 8. Financial Statements and Supplementary Data
The following financial statements and notes thereto of the Company
included in the Company's Annual Report to Shareholders for the fiscal year
ended March 31, 1995, are hereby incorporated herein by reference:
Consolidated Balance Sheets--March 31, 1995 and 1994
Consolidated Statements of Earnings--Years ended March 31, 1995, 1994
and 1993
Consolidated Statements of Stockholders' Equity--Years ended March 31,
1995, 1994 and 1993
Consolidated Statements of Cash Flows--Years ended March 31, 1995,
1994 and 1993
Notes to Consolidated Financial Statements--March 31, 1995
Report of Independent Auditors
Information with respect to supplementary financial information
relating to the Company appears in Note 9-- Summary of Quarterly Results of
Operations (Unaudited) of the Notes to Consolidated Financial Statements
incorporated herein by reference above in this Item 8 from the Company's Annual
Report to Shareholders for the fiscal year ended March 31, 1995.
The following supplementary schedule for the Company for the year
ended March 31, 1995, is included elsewhere in this report.
Schedule VIII--Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and, therefore,
have been omitted.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to Item 10 is hereby incorporated herein by
reference from the Company's proxy statement in respect of the 1995 Annual
Meeting of Shareholders, definitive copies of which are expected to be filed
with the Securities and Exchange Commission on or before 120 days after the end
of the Company's 1995 fiscal year.
Item 11. Executive Compensation
Information with respect to Item 11 is hereby incorporated herein by
reference from the Company's proxy statement in respect of the 1995 Annual
Meeting of Shareholders, definitive copies of which are expected to be filed
with the Securities and Exchange Commission on or before 120 days after the end
of the Company's 1995 fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information with respect to Item 12 is hereby incorporated herein by
reference from the Company's proxy statement in respect of the 1995 Annual
Meeting of Shareholders, definitive copies of which are expected to be filed
with the Securities and Exchange Commission on or before 120 days after the end
of the Company's 1995 fiscal year.
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Item 13. Certain Relationships and Related Transactions
Information with respect to Item 13 is hereby incorporated herein by
reference from the Company's proxy statement in respect of the 1995 Annual
Meeting of Shareholders, definitive copies of which are expected to be filed
with the Securities and Exchange Commission on or before 120 days after the end
of the Company's 1995 fiscal year.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K
(a) (1) and (2) -- The response to this portion of Item
14 appears elsewhere in this report as
a separate section of this report.
(3) -- Exhibits
3(i)1 Articles of Incorporation of the
Company, as amended, filed as an
exhibit to the Company's Annual Report
on Form 10-K for the year ended March
31, 1982, and hereby incorporated
herein by reference.
3(i)2 Articles of Amendment to the Articles
of Incorporation of the Company, as
filed with the Texas Secretary of
State on September 22, 1987, filed as
an exhibit to the Company's Annual
Report on Form 10-K for the year ended
March 31, 1988, and hereby
incorporated herein by reference.
3(ii) Bylaws of the Company, amended as of
March 27, 1992, filed as an exhibit to
the Company's Annual Report on Form
10-K for the year ended March 31,
1992, and incorporated herein by
reference.
4.1 Promissory Note of the Company to
Texas Commerce Bank National
Association, dated December 1, 1993,
in the amount of $4,000,000, filed as
an Exhibit to the Company's Quarterly
Report on Form 10-Q for the quarterly
period ended December 31, 1993, and
hereby incorporated herein by
reference.
4.2 Letter Agreement dated March 22, 1993,
as amended by the First Amendment
dated December 31, 1993, by and
between the Company and Texas Commerce
Bank National Association regarding a
$5,000,000 revolving credit line,
filed as an Exhibit to the Company's
Quarterly Report on Form 10-Q for the
quarterly period ended December 31,
1993, and hereby incorporated herein
by reference.
4.3 Amended and Restated Letter Agreement
dated April 1, 1995, between the
Company and Texas Commerce Bank
National Association regarding an
$8,000,000 revolving line of credit.
10.1 Lease Agreement between NCNB Texas
National Bank, as Trustee, and the
Company dated September 10, 1990, and
Addendum No. 1 thereto dated November
11, 1991, filed as an exhibit to the
Company's Annual Report on Form 10-K
for the year ended March 31, 1992, and
incorporated herein by reference.
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*10.2 1974 Stock Option Plan, as amended
through March 24, 1982, as further
amended on January 21, 1987 and
February 25, 1988, filed as an exhibit
to the Company's Annual Report on Form
10-K for the year ended March 31,
1988, and hereby incorporated herein
by reference.
10.3 Lease, effective September 1, 1990, by
and between Lone Star Steel Company,
Texas & Northern Railway, Inc., a
Texas corporation, and the Company,
filed as an exhibit to the Company's
Current Report on Form 8-K dated
August 1, 1990, and hereby
incorporated herein by reference.
*10.4 Friedman Industries, Incorporated 1989
Incentive Stock Option Plan, filed as
an exhibit to the Company's Annual
Report on Form 10-K for the fiscal
year ended March 31, 1991, and hereby
incorporated herein by reference.
10.5 Promissory Note of the Company to
Texas Commerce Bank National
Association, dated December 1, 1993,
in the amount of $4,000,000 (included
as Exhibit 4.1 hereto).
10.6 Letter Agreement dated March 22, 1993,
as amended by the First Amendment
dated December 31, 1993, by and
between the Company and Texas Commerce
Bank National Association regarding a
$5,000,000 revolving credit line
(included as Exhibit 4.2 hereto).
10.7 Amended and Restated Letter Agreement
dated April 1, 1995, between the
Company and Texas Commerce Bank
National Association regarding an
$8,000,000 revolving line of credit
(included as Exhibit 4.3 hereto).
13.1 The Company's Annual Report to
Shareholders for the fiscal year ended
March 31, 1995.
21.1 List of Subsidiaries.
23.1 Consent of Independent Auditors.
27.1 Financial Data Schedule
_______________
* Management contract or compensation plan.
Copies of exhibits filed as a part of this Annual
Report on Form 10-K may be obtained by
shareholders of record at a charge of $.10 per
page. Direct inquiries to: Benny Harper, Vice
President, Friedman Industries, Incorporated, P.
O. Box 21147, Houston, Texas 77226.
(b) Reports on Form 8-K filed in the fourth quarter of fiscal 1995:
None
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Friedman Industries, Incorporated has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, and State of Texas, this 26th day of June,
1995.
FRIEDMAN INDUSTRIES, INCORPORATED
By: /s/ Jack Friedman
----------------------------------
Jack Friedman
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities
and on the dates indicated on behalf of Friedman Industries, Incorporated in
the City of Houston, and State of Texas.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C> <C>
/s/ Jack Friedman Chairman of the Board, Chief June 26, 1995
---------------------------------- Executive Officer and Director
Jack Friedman (Principal Executive Officer)
/s/ Harold Friedman President, Chief Operating June 26, 1995
---------------------------------- Officer and Director
Harold Friedman (Principal Financial Officer)
/s/ Benny Harper Treasurer (Principal Accounting June 26, 1995
---------------------------------- Officer)
Benny Harper
/s/ Henry Spira Director June 26, 1995
----------------------------------
Henry Spira
/s/ Charles W. Hall Director June 26, 1995
----------------------------------
Charles W. Hall
/s/ Kirk K. Weaver Director June 26, 1995
----------------------------------
Kirk K. Weaver
/s/ Alan M. Rauch Director June 26, 1995
----------------------------------
Alan M. Rauch
/s/ Hershel M. Rich Director June 26, 1995
----------------------------------
Hershel M. Rich
</TABLE>
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<PAGE> 11
FRIEDMAN INDUSTRIES, INCORPORATED
HOUSTON, TEXAS
ANNUAL REPORT FORM 10-K
YEAR ENDED MARCH 31, 1995
ITEM 14(a)(1) AND (2)
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
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SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
FRIEDMAN INDUSTRIES, INCORPORATED
<TABLE>
<CAPTION>
===============================================================================================================
Column A Column B Column C Column D Column E
- - ---------------------------------------------------------------------------------------------------------------
ADDITIONS
------------------------------
Balance at Charged to Charged to Balance
Beginning Costs and Other Accounts Deductions- at End
Description of Period Expenses(1) Describe Describe (A) of Period
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1995
Allowance for doubtful
accounts receivable (deducted
from related asset account)..... $ 5,900 $13,715 $13,645 $ 5,970
======= ======= =========== ======= =======
Year ended March 31, 1994
Allowance for doubtful
accounts receivable (deducted
from related asset account)..... $ 5,650 $ 250 $ 5,900
======= ======= =========== =========== =======
Year ended March 31, 1993
Allowance for doubtful
accounts receivable (deducted
from related asset account)..... $26,516 $38,903 $59,769 $ 5,650
======= ======= =========== ======= =======
</TABLE>
- - ---------------
(A) Accounts and notes receivable written off.
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<PAGE> 13
FORM 10-K
ITEM 14(a)(1) and (2)
FRIEDMAN INDUSTRIES, INCORPORATED
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
The following financial statements of the Company are set forth herewith
in response to Item 14(a)(1) and (2) of this report.
Consolidated Balance Sheets--March 31, 1995 and 1994
Consolidated Statements of Earnings--Years ended March 31, 1995, 1994 and 1993
Consolidated Statements of Stockholders' Equity--Years end March 31,
1995, 1994 and 1993
Consolidated Statements of Cash Flows--Years ended March 31, 1995, 1994
and 1993
Notes to Consolidated Financial Statements--March 31, 1995
Report of Independent Auditors
The following financial statement schedule of the Company are included
in this report.
Schedule VIII--Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and, therefore,
have been omitted.
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<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- - ----------- -----------
<S> <C>
3(i)1 Articles of Incorporation of the Company, as amended, filed as an exhibit
to the Company's Annual Report on Form 10-K for the year ended March 31,
1982, and hereby incorporated herein by reference.
3(i)2 Articles of Amendment to the Articles of Incorporation of the Company, as
filed with the Texas Secretary of State on September 22, 1987, filed as an
exhibit to the Company's Annual Report on Form 10-K for the year ended
March 31, 1988, and hereby incorporated herein by reference.
3(ii) Bylaws of the Company, amended as of March 27, 1992, filed as an exhibit to
the Company's Annual Report on Form 10-K for the year ended March 31, 1992,
and incorporated herein by reference.
4.1 Promissory Note of the Company to Texas Commerce Bank National Association,
dated December 1, 1993, in the amount of $4,000,000, filed as an Exhibit to
the Company's Quarterly Report on Form 10-Q for the quarterly period ended
December 31, 1993, and hereby incorporated herein by reference.
4.2 Letter Agreement dated March 22, 1993, as amended by the First Amendment
dated December 31, 1993, by and between the Company and Texas Commerce Bank
National Association regarding a $5,000,000 revolving credit line, filed as
an Exhibit to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 1993, and hereby incorporated herein by
reference.
4.3 Amended and Restated Letter Agreement dated April 1, 1995, between the
Company and Texas Commerce Bank National Association regarding an
$8,000,000 revolving line of credit.
10.1 Lease Agreement between NCNB Texas National Bank, as Trustee, and the
Company dated September 10, 1990, and Addendum No. 1 thereto dated November
11, 1991, filed as an exhibit to the Company's Annual Report on Form 10-K
for the year ended March 31, 1992, and incorporated herein by reference.
</TABLE>
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<TABLE>
<S> <C>
10.2 1974 Stock Option Plan, as amended through March 24, 1982, as further
amended on January 21, 1987 and February 25, 1988, filed as an exhibit to
the Company's Annual Report on Form 10-K for the year ended March 31, 1988,
and hereby incorporated herein by reference.
10.3 Lease, effective September 1, 1990, by and between Lone Star Steel Company,
Texas & Northern Railway, Inc., a Texas corporation, and the Company, filed
as an exhibit to the Company's Current Report on Form 8-K dated August 1,
1990, and hereby incorporated herein by reference.
10.4 Friedman Industries, Incorporated 1989 Incentive Stock Option Plan, filed
as an exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1991, and hereby incorporated herein by reference.
10.5 Promissory Note of the Company to Texas Commerce Bank National Association,
dated December 1, 1993, in the amount of $4,000,000 (included as Exhibit
4.1 hereto).
10.6 Letter Agreement dated March 22, 1993, as amended by the First Amendment
dated December 31, 1993, by and between the Company and Texas Commerce Bank
National Association regarding a $5,000,000 revolving credit line (included
as Exhibit 4.2 hereto).
10.7 Amended and Restated Letter Agreement dated April 1, 1995, between the
Company and Texas Commerce Bank National Association regarding an
$8,000,000 revolving line of credit (included as Exhibit 4.3 hereto).
13.1 The Company's Annual Report to Shareholders for the fiscal year ended
March 31, 1995.
21.1 List of Subsidiaries
23.1 Consent of Independent Auditors.
27.1 Financial Data Schedule
---------------
</TABLE>
-15-
<PAGE> 1
EXHIBIT 4.3
AMENDED AND RESTATED LETTER AGREEMENT
April 1, 1995
("Letter Agreement")
Friedman Industries, Incorporated
4001 Homestead Road
Houston, Texas 77028
RE: Renewal, extension, rearrangement, modification, and increase of a
$5,000,000.00 revolving line of credit to an $8,000,000.00 revolving
line of credit to Friedman Industries, Incorporated, a Texas
corporation (the "Borrower") and confirmation of a $4,000,000.00
advance line of credit which converted to a term loan to Friedman
Industries, Incorporated, from Texas Commerce Bank National
Association (the "Bank")
Dear Benny:
Subject to the terms and conditions of this Letter Agreement (as the
same may be amended, restated and supplemented from time to time, the "Letter
Agreement") which renews, extends, amends and supersedes that certain letter
agreement dated March 22, 1993 by and between the Bank and the Borrower, the
Bank is pleased to renew, extend, rearrange, modify, and increase that certain
$5,000,000.00 revolving line of credit ("Revolving Line of Credit") to
$8,000,000.00.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties hereto, the Bank and the Borrower hereby agree
as follows:
T E R M S A N D C O N D I T I O N S
SECTION 1 -- THE LINES
Section 1.1 REVOLVING LINE OF CREDIT Subject to the terms and conditions
hereof, the Bank agrees to make, upon the request of the Borrower, loans (the
"Loan" or "Loans") not to exceed at any one time $8,000,000.00 in the aggregate
(the "Commitment"), the Borrower having the right to borrow, repay or reborrow
hereunder. The Loans shall be evidenced by a revolving promissory note of even
date herewith, bearing interest and payable as stated therein, which note
shall be substantially in the form of Exhibit A attached hereto and
incorporated herein by reference for all purposes (together with any and all
renewals, extensions, modifications, rearrangements and replacements thereof
and substitutions therefor, the "Revolving Note"). The purpose of the
Revolving Line of Credit is to provide the Borrower with working capital
support.
Section 1.2 ADVANCE LINE OF CREDIT The Bank made advances (an "Advance"
and "Advances") in an aggregate amount of $4,000,000.00, pursuant to an Advance
Commitment as evidenced by that certain Advancing Promissory Note Converting to
A Term Note dated December 1, 1993 in the original principal amount of
$4,000,000.00 executed by the Borrower payable to the order of the Bank and
having a final maturity date of December 1, 1999 (together with any and all
renewals, extensions, modifications, rearrangements and replacements thereof
and substitutions therefor, the "Advance Note"). The purpose of the Advance
Line of Credit was to provide the Borrower with funds for the purchase of
equipment and construction of a steel warehouse and distribution facility. The
Borrower confirms and acknowledges (i) the existence of the Advance Note, which
converted to a Term Note on December 1, 1994, and (ii) that as of the Effective
Date, there is an outstanding principal balance of $3,800,000.00 under the
Advance Note.
<PAGE> 2
FRIEDMAN INDUSTRIES, INCORPORATED
AMENDED AND RESTATED LETTER AGREEMENT
April 1, 1995
Section 1.3 CERTAIN REFERENCES The term "Loan" or "Loans" shall also
refer to each and all of the Loans under the Revolving Line of Credit and the
Advance Line of Credit. The term "Notes" shall refer to the Revolving Note and
the Advance Note. The term "Line" or "Lines" shall also refer to each and both
of the Revolving Line of Credit and the Advance Line of Credit.
Section 1.4 COLLATERAL The Lines are unsecured, but subject to a negative
pledge of real property and improvements of the warehouse/distribution facility
as further described in Section 4.4 hereof. The term "Loan Documents" as used
herein shall refer to the Revolving Note, the Advance Note, this Agreement, and
any other document, instrument, agreement and writing that may be required
executed, or to be executed, and delivered, or previously delivered, by the
Borrower to the Bank to properly complete the above described transactions and
any renewal, extension, modification, supplement, replacement, rearrangement,
increases, or substitution of any of the foregoing.
SECTION 2 -- CONDITIONS PRECEDENT
Section 2.1 ALL LOANS AND ADVANCES The obligation of the Bank to renew
and extend the Revolving Line of Credit and to make any Loan hereunder is
subject to the satisfaction of the following conditions precedent:
(a) the Bank shall have received the following, all of which shall be
duly executed and in form and substance satisfactory to the Bank and its legal
counsel (the "Proper Form"): (1) the Revolving Note; and (2) such other
documents as the Bank may reasonably require; (b) no Event of Default shall have
occurred and be continuing; (c) there is no material adverse change in the
business or financial condition of the Borrower from the business and financial
condition described in the financial statements dated December 31, 1994
previously delivered to the Bank; (d) there is no material adverse changes with
respect to any other information or documentation previously delivered to the
Bank; and (e) the making of the Loans shall not be prohibited by, or subject the
Bank to any penalty or onerous condition under any legal requirement.
SECTION 3 -- REPRESENTATION AND WARRANTIES
To induce the Bank to renew, extend, rearrange, and increase the
Revolving Line of Credit, to enter into this Letter Agreement and to make Loans
under the Revolving Line of Credit, the Borrower represents and warrants that
as long as any sum remains outstanding under the Loan Documents and until the
latest final maturity of the Revolving Note, the Advance Note and this Letter
Agreement that:
Section 3.1 ORGANIZATION The Borrower shall be duly organized, validly
existing and in good standing under the laws of the state of its incorporation
and execution of any and all Loan Documents are, and shall be, duly authorized
by proper corporate action and will not and do not contravene the articles of
incorporation or by-laws of the Borrower and all Loan Documents are and will
remain legally binding upon the Borrower;
Section 3.2 ACCURATE INFORMATION The information in the financial
statements and any other information provided or which will be provided to the
Bank in the future by the Borrower, is, at all times materially true, correct
and accurate as of the date provided therein and shall be materially true,
correct and accurate on the date that any Advance or Loan is funded by the
Bank;
Section 3.3 NO DEFAULTS No Default (as defined hereafter) exists and is
continuing hereunder or under any of the other Loan Documents and no default
exists and is continuing under any other agreement material to the financial
condition of the Borrower;
Page 2 of 6 Pages
<PAGE> 3
FRIEDMAN INDUSTRIES, INCORPORATED
AMENDED AND RESTATED LETTER AGREEMENT
April 1, 1995
Section 3.4 NO LITIGATION No litigation exists which, if adversely
determined against the Borrower, would adversely affect in a material manner
the financial condition, operations, property and assets of and/or existence of
the Borrower; and
Section 3.5 PAYMENT OF TAXES The Borrower has paid all taxes due and
owing by it, including without limitation, employment taxes.
SECTION 4 -- COVENANTS
The Borrower covenants and agrees that so long as any amount remains
unpaid under the Notes or any of the other Loan Documents that the Borrower
shall:
Section 4.1 FINANCIAL STATEMENTS Provide the Bank (a) on a quarterly
basis, a copy of the Borrower's 10-Q at such time as this statement is
submitted to the Securities and Exchange Commission ("SEC") together with a
certificate of compliance duly executed by an officer of Borrower and (b) on an
annual basis, the Borrower's 10-K at such time as this statement is submitted
to the SEC, all prepared on a consolidated and consolidating basis in
accordance with GAAP (as defined below) together with a certificate of
compliance duly executed by an officer of Borrower; and
Section 4.2 FINANCIAL COVENANTS For the periods stated below, Friedman
shall maintain the following:
(a) Maintain a Working Capital of at least the amount shown below
during the corresponding period indicated below:
Period Minimum Working Capital
------ -----------------------
At all times $10,000,000.00
(b) Maintain a Tangible Net Worth plus Subordinated Debt of at
least the amount shown below during the corresponding period
indicated below:
Period Minimum Tangible Net Worth
------ --------------------------
Effective Date through
March 30, 1996 $17,500,000.00
Thereafter, said required minimum Tangible Net Worth to be
increased annually calculated as the amount equal to the sum
of (x) the immediately preceding year's required amount plus
(y) 20% of the immediately preceding year's net income.
(c) Maintain a Current Ratio of at least the ratio shown below
during the corresponding period indicated below:
Period Minimum Current Ratio
------ ---------------------
At all times 2.00 to 1.00
(d) Maintain a Total Indebtedness to Tangible Net Worth plus
Subordinated Debt ratio no greater than the ratio shown below
during the corresponding period indicated below:
Page 3 of 6 Pages
<PAGE> 4
FRIEDMAN INDUSTRIES, INCORPORATED
AMENDED AND RESTATED LETTER AGREEMENT
April 1, 1995
Maximum Debt to
Period Tangible Net Worth Ratio
------ ------------------------
Effective Date through, and
including March 31, 1997 1.10 to 1.00
Effective April 1, 1997 and
thereafter 1.00 to 1.00
(e) Maintain a Fixed Charge Ratio of at least the ratio shown
below during the corresponding period indicated below:
Period Minimum Fixed Charge Ratio
------ --------------------------
At all times for the
preceding 12 month period
as of March 31 of each year 1.00 to 1.00
Section 4.3 DEFINITION OF FINANCIAL TERMS Unless otherwise defined
herein, the capitalized financial terms utilized above are defined in
accordance with generally accepted accounting principles, consistently applied
("GAAP"). The following definitions correspond to the capitalized financial
terms used above: (i) "Current Assets" shall mean all cash, customers' accounts
and other receivables due within one year from statement date, inventory,
deposits, marketable securities, and prepaid expenses to be consumed within one
year from statement date; (ii) "Current Liabilities" shall mean all amounts due
or to become due for payment within twelve (12) months of statement date; (iii)
"Current Ratio" shall mean the ratio of Current Assets to Current Liabilities;
(iv) "Indebtedness" shall mean and include (a) all items which in accordance
with GAAP would be included on the liability side of a balance sheet on the
date as of which Indebtedness is to be determined (excluding capital stock,
surplus, surplus reserves and deferred credits); (b) all guaranties,
endorsements and other contingent obligations in respect of, or any obligations
to purchase or otherwise acquire, Indebtedness of others, and (c) all
Indebtedness secured by any lien existing on any interest of the Person with
respect to which indebtedness is being determined in Property owned subject to
such lien whether or not the Indebtedness secured thereby shall have been
assumed; (v) "Subordinated Debt" shall mean any Indebtedness subordinated to
Indebtedness due the bank on terms satisfactory to the Bank and its legal
counsel; (vi) "Tangible Net worth" shall mean as at any date: (1) the aggregate
amount at which all consolidated assets of the Borrower would be shown on a
balance sheet at such date after deducting capitalized research and development
costs, capitalized interest, debt discount and expense, goodwill, patents,
trademarks, copyrights, franchises, licenses and such other assets as are
properly classified as "intangible assets", less; (2) the aggregate amount of
all Indebtedness, liabilities (including tax and other proper accruals) and
reserves of the Borrower, excluding Subordinated Debt; and (vii) "Fixed Charge
Ratio" shall mean a ratio, the numerator ("Available Cash Flow") of which shall
be the Borrower's ordinary net income plus depreciation plus interest expense
plus tax expense less cash taxes divided by a denominator ("Total Fixed
Charge") of which shall be total scheduled principal payments made by the
Borrower plus interest expenses paid plus non-financed capital expenditures
made.
Section 4.4 CONFIRMATION OF NEGATIVE PLEDGE OF CERTAIN ASSETS The
Borrower confirms and ratifies its agreement not to create, incur, assume,
suffer or permit to exist any lien or security interest in, whether directly or
indirectly by assignment, pledge or other form of security interest or
conveyance, transfer any of the Borrower's interest in such real and/or
personal property (equipment, fixtures, or improvements existing or hereinafter
acquired or constructed on) in and on the real property owned by the Borrower
located in Hickman, Mississippi County, Arkansas. The Borrower represents and
warrants
Page 4 of 6 Pages
<PAGE> 5
FRIEDMAN INDUSTRIES, INCORPORATED
AMENDED AND RESTATED LETTER AGREEMENT
April 1, 1995
to the Bank that as of the Effective Date, there is no encumbrance, security
interest or lien encumbering the above property.
SECTION 5 -- EVENTS OF DEFAULT AND REMEDIES
If any of the following events shall occur (an "EVENT OF DEFAULT" or
"DEFAULT"), then the Bank may, at its option, suspend the making of Advances or
Loans under the Lines to the Borrower until such Event or Events of Default is
cured; however, the Borrower shall have 10 days after the occurrence of any
Event of Default to cure same before the Bank may do any or all of the
following: (1) declare either or both of the Notes to be, and thereupon either
or both of the Notes shall forthwith become, immediately due and payable,
together with all accrued and unpaid interest thereon, all fees and all other
obligations and indebtedness of the Borrower under the Loan Documents, without
notice of acceleration or of intention to accelerate, presentment and demand or
protest, all of which are expressly waived by the Borrower; (2) without notice
to the Borrower, terminate the Commitments and accelerate the maturity dates
hereof; and(3) exercise any and all other rights pursuant to the Loan
Documents, at law, in equity or otherwise: IT SHALL BE A DEFAULT OR AN EVENT
OF DEFAULT IF: (a) the Borrower shall fail to pay any principal of or interest
on either or both of the Notes or any other obligation under any Loan Document
as and when due; or (b) the Borrower shall fail to pay at maturity, or within
any applicable period of grace, any principal of or interest on any other
borrowed money obligation or shall fail to observe or perform any term,
covenant or agreement contained in any agreement or obligation by which it is
bound; or (c) Any representation or warranty made in connection with any Loan
Document shall prove to have been incorrect, false or misleading; or (d)
Default shall occur in the punctual and complete performance of any covenant of
any of the parties contained in any Loan Document; or (e) The occurrence of an
Event of Default under any Loan Document; or (f) Final judgment for the payment
of money shall be rendered against the Borrower in excess of $150,000.00 in the
aggregate and the same shall remain undischarged for a period of 30 days during
which execution shall not be effectively stayed; or (g) The making of any levy,
seizure or attachment of any property of the Borrower; or the loss, theft,
substantial damage, or destruction of any material portion of such property; or
(h) Any order shall be entered in any proceeding against the Borrower decreeing
the dissolution, liquidation or split-up thereof, and such order shall remain
in effect for 30 days; or (i) The Borrower shall make a general assignment for
the benefit of creditors or shall petition or apply to any tribunal for the
appointment of a trustee, custodian, receiver or liquidator of all or any
substantial part of its business, estate or assets or shall commence any
proceeding under any bankruptcy, insolvency, dissolution or liquidation law of
any jurisdiction, whether now or hereafter in effect; or any such petition or
application shall be filed or any such proceeding shall be commenced against
the Borrower and the Borrower by any act or omission shall indicate approval
thereof, consent thereto or acquiescence therein, or an order shall be entered
appointing a trustee, custodian, receiver or liquidator of all or any
substantial part of the assets of the Borrower or granting relief to the
Borrower or approving the petition in any such proceeding, and such order shall
remain in effect for more than 30 days; or the Borrower shall fail generally to
pay its debts as they become due or suffer any writ of attachment or execution
or any similar process to be issued or levied against it or any substantial
part of its property valued in excess of $250,000.00 in the aggregate which is
not released, stayed, bonded or vacated within 30 days after its issue or levy;
or (j) The Borrower shall have made or suffered a transfer of any of its
property which may be fraudulent under any bankruptcy, fraudulent conveyance or
similar law; or shall have made any transfer of its property to or for the
benefit of a creditor at a time when other creditors similarly situated have
not been paid; or (k) A material adverse change shall occur in the assets,
liabilities, financial condition, business or affairs of the Borrower; or (l)
Any substantial change shall occur in the ownership of the Borrower; (l) Harold
Friedman and/or Jack Friedman shall cease to be active in the management of the
Borrower.
Page 5 of 6 Pages
<PAGE> 6
FRIEDMAN INDUSTRIES, INCORPORATED
AMENDED AND RESTATED LETTER AGREEMENT
April 1, 1995
SECTION 6 -- MISCELLANEOUS
Section 6.1 The Borrower acknowledges that each of the Loan Documents is
in all respects ratified and confirmed, and all of the rights, powers and
privileges created thereby or thereunder are ratified, extended, carried
forward and remain in full force and effect except as the Letter Agreement is
hereby amended and restated.
Section 6.2 AMENDMENTS AND WAIVERS No amendment or waiver hereto shall be
effective unless in writing signed by all parties hereto.
Section 6.3 GOVERNING LAW THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND AS APPLICABLE,
THE LAWS OF THE UNITED STATES OF AMERICA.
Section 6.4 CONFLICTS BETWEEN DOCUMENTS If any conflict should arise
between the provisions hereof and any of the other Loan Documents, this
Agreement shall control.
Section 6.5 NO ORAL AGREEMENTS THIS WRITTEN AGREEMENT AND THE OTHER LOAN
DOCUMENTS CONSTITUTE A "LOAN AGREEMENT" AS DEFINED IN SECTION 26.02(a) OF THE
TEXAS BUSINESS & COMMERCE CODE, AND REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Please indicate your acceptance of this Letter Agreement by signing in
the space provided below. This Agreement is effective as of the April 1, 1995.
Sincerely yours,
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
as the "Bank"
By: _________________________________________
Name: _______________________________________
Title: ______________________________________
Acknowledged and agreed to this _____ day of ______________, 1995,
effective as of April 1, 1995 by:
FRIEDMAN INDUSTRIES, INCORPORATED,
as the "Borrower"
By: _________________________________________
Name: _______________________________________
Title: ______________________________________
Page 6 of 6 Pages
<PAGE> 7
REVOLVING PROMISSORY NOTE
(this "Note")
U.S. $8,000,000.00 April 1, 1995
FOR VALUE RECEIVED, FRIEDMAN INDUSTRIES, INCORPORATED (the "Maker"), a Texas
corporation, promises to pay to the order of TEXAS COMMERCE BANK NATIONAL
ASSOCIATION (the "Bank") on or before April 1, 1998 (the "Termination Date"),
at its banking house at 712 Main Street, Houston, Harris County, Texas, or at
such other location as the Bank may designate, in lawful money of the United
States of America, the lesser of: (i) the principal sum of EIGHT MILLION AND
NO 100THS DOLLARS (U.S. $8,000,000.00) or (ii) the aggregate unpaid principal
amount of all loans made by the Bank hereunder (each such loan being a "Loan"),
which may be outstanding on the Termination Date. Each Loan shall be due and
payable on the maturity date agreed to by the Bank and the Maker with respect
to such Loan (the "Maturity Date"). In no event shall any Maturity Date fall
on a date after the Termination Date. Subject to the limitations set forth
herein, the Maker may borrow, repay and reborrow hereunder and there is no
limitation on the number of Loans made hereunder so long as the total unpaid
principal amount at anytime outstanding does not exceed the Maximum Loan Total
(as hereinafter defined).
The Loans may be either CD Rate Loans (as hereinafter defined), Prime Rate
Loans (as hereinafter defined) or Eurodollar Loans (as hereinafter defined).
The Maker shall pay interest on each Prime Rate Loan for the Interest Period
(as hereinafter defined) with respect thereto at a rate per annum equal to the
lesser of: (i) the Prime Rate (as hereinafter defined) in effect from time to
time (the "Effective Prime Rate"); or (ii) the Highest Lawful Rate (as
hereinafter defined), which interest shall be due and payable on the last day
of each calendar quarter and on the last day of each Interest Period.
The Maker shall pay interest on each CD Rate Loan for the Interest Period with
respect thereto at a rate per annum equal to the lesser of: (i) the CD Rate
(as hereinafter defined) for such Interest Period plus one and one half of one
percent (1.50%) (the "Effective CD Rate"); or (ii) the Highest Lawful Rate,
which interest shall be due and payable on the last day of each such Interest
Period, and if such Interest Period has a duration exceeding ninety days, on
each ninetieth day during such Interest Period.
The Maker shall pay interest on each Eurodollar Loan for the Interest Period
with respect thereto on the unpaid principal amount thereof at a rate per annum
equal to the lesser of: (i) the Eurodollar Rate (as hereinafter defined) plus
one and one half of one percent (1.50%) (the "Effective Eurodollar Rate"); or
(ii) the Highest Lawful Rate, which interest shall be due and payable on the
last day of each such Interest Period, and if such Interest Period has a
duration exceeding three months, on the last day of each third month during
such Interest Period.
Any amount not paid when due with respect to principal (whether at Maturity
Date, by acceleration or otherwise) costs, expenses, and to the extent
permitted by applicable law, interest, shall bear interest at a rate per annum
equal to the lesser of: (i) the Prime Rate in effect from time to time; or
(ii) the Highest Lawful Rate, which interest shall be due and payable on
demand. The principal of any Loan shall be deemed past due if not paid on or
before the Maturity Date or any earlier maturity date resulting from
acceleration in accordance with the terms of this Note or as provided by law or
otherwise. Interest accrued and unpaid with respect to any Loan shall be
deemed past due if not paid on or before the applicable interest payment due
date as provided for herein.
Notwithstanding the foregoing, if at any time the effective rate of interest
which would otherwise be payable on any Loan evidenced by this Note exceeds the
Highest Lawful Rate, the rate of interest to accrue on the unpaid principal
balance of such Loan during all such times shall be limited to the Highest
Lawful Rate, but any subsequent reductions in such interest rate shall not
become effective to reduce such interest rate below the Highest Lawful rate
until the total amount of interest accrued on the unpaid principal balance of
such Loan equals the total amount of interest which would have accrued if the
Effective Prime Rate, Effective CD Rate or Effective Eurodollar Rate, whichever
is applicable, had at all times been in effect.
Each Loan shall be in an amount not less than $10,000.00 and an integral
multiple of $10,000.00. Interest with respect to Prime Rate Loans shall be
calculated on the basis of a 365 day year or 366 day year, as the case may be,
for the actual number of days elapsed. Interest with respect to CD Rate Loans
and Eurodollar Loans shall be calculated on the basis of a 360 day year for the
actual days elapsed, unless such calculation would result in a usurious
interest rate, in which case such interest shall be calculated on the basis of a
365 day or 366 day year, as the case may be.
The following terms shall have the respective meanings indicated:
"Assessment Rate" means, for any date, the annual rate
(rounded upwards, if not already a whole multiple of 1/16 of 1%, to
the next higher 1/16 of 1%) most recently estimated by the
Page 1 of 6 Pages
Signed for Identification
By:______________________
<PAGE> 8
Revolving Promissory Note
FRIEDMAN INDUSTRIES, INCORPORATED
April 1, 1995
Bank as the then current net annual assessment rate that will be
employed in determining amounts payable by the Bank to the Federal
Deposit Insurance Corporation for insurance by the Corporation of time
deposits made in dollars at its domestic offices.
"Board" shall mean the Board of Governors of the Federal
Reserve System of the United States.
"Borrowing Date" means any Business Day on which the Bank
shall make a Loan hereunder.
"Business Day" means a day: (i) on which the Bank and
commercial banks in New York City are generally open for business; and
(ii) with respect to Eurodollar Loans, on which dealings in United
States Dollar deposits are carried out in the Eurodollar interbank
markets.
"CD Rate" for any Interest Period means, for each CD Rate
Loan, an interest rate per annum determined by the Bank to be the sum
of: (a) the rate per annum obtained bydividing: (i) the consensus
bid rate obtained from certificate of deposit dealers of recognized
standing selected by the Bank for the purchase at face value of
certificates of deposit of the Bank in an amount approximately equal
to the Bank's CD Rate Loan during such Interest Period and with a
maturity equal to such Interest Period at 9:00 a.m. (Houston, Texas
time) (or as soon thereafter as practicable) on the first day of such
Interest Period, by (ii) Statutory Reserves; PLUS (b) the Assessment
Rate.
"CD Rate Loan" means a Loan which bears interest at a rate
determined by reference to the CD Rate.
"Eurodollar Lending Office" means the office of the Bank
located at 712 Main Street, Houston, Texas, or such other office of
the Bank as the Bank may from time to time specify to the Maker.
"Eurodollar Loan" means a Loan which bears interest at a rate
determined by reference to the Eurodollar Rate.
"Eurodollar Rate" means, for each Eurodollar Loan, an interest
rate per annum determined by the Bank by dividing: (i) the rate per
annum determined by the Bank at or before 10:00 a.m. (Houston, Texas
time) (or as soon thereafter as practicable) two Business Days before
the first day of such Interest Period to be the rate per annum at
which deposits of dollars are offered to the Bank by prime banks in
whatever Eurodollar interbank market may be selected by the Bank in
its sole discretion, acting in good faith, at the time of
determination and in accordance with the usual practice in such market
for delivery on the first day of such Interest Period in immediately
available funds and for a period equal to such Interest Period and in
an amount substantially equal to the amount of the Bank's Eurodollar
Loan during such Interest Period; by (ii) Statutory Reserves.
"Highest Lawful Rate" as used herein shall mean the maximum
nonusurious interest rate permitted from time to time to be contracted
for, taken, reserved, charged or received on any Loan under applicable
federal or Texas laws, whichever permits the higher lawful rate;
provided, however, that in the event: (i) such maximum nonusurious
interest rate shall, at any time or times during the term of a Loan
evidenced hereby, be reduced to a rate less than the maximum
nonusurious rate in effect on the date of such Loan; and (ii)
applicable law permits contracting for, taking, reserving, charging,
and receiving on such loan through the duration thereof the maximum
nonusurious rate permitted to be contracted for, taken, reserved,
charged or received on such Loan under applicable law in effect on the
date of such Loan. At all such times, if any, as Texas law shall
establish the Highest Lawful Rate, the Highest Lawful Rate shall be
the "indicated rate ceiling" (as defined in Tex. Rev. Civ. Stat. art.
5069-1.04) from time to time in effect.
"Interest Period" means, with respect to any Loan, the period
commencing on the Borrowing Date and ending on the Maturity Date,
consistent with the following provisions. The duration of each
Interest Period shall be:
(a) in the case of a Prime Rate Loan, a period selected by the
Maker; and
(b) in the case of a CD Rate Loan, 30, 60 or 90 days; and
Page 2 of 6 Pages
Signed for Identification
By:______________________
<PAGE> 9
Revolving Promissory Note
FRIEDMAN INDUSTRIES, INCORPORATED
April 1, 1995
(c) in the case of a Eurodollar Loan, 1, 2 or 3 months;
in each case as selected by the Maker and agreed to by the Bank. The
Maker's choice of Interest Period is also subject to the following
limitations:
(i) No Interest Period shall end on a date after the
Termination Date; and
(ii) If the last day of an Interest Period would be a day
other than a Business Day, the Interest Period shall
end on the next succeeding Business Day (unless the
Interest Period relates to a Eurodollar Loan and the
next succeeding Business Day is in a different
calendar month than the day on which the Interest
Period would otherwise end, in which case the
Interest Period shall end on the next preceding
Business Day).
"Maximum Loan Total" shall mean $8,000,000.00 minus the
aggregate outstanding principal balance of the Term Notes (hereinafter
defined); provided, however, that after the later of the maturity
dates of Term Note 1 or Term Note 2 and payment in full of all
obligations under the Term Notes, "Maximum Loan Total" shall mean
$8,000,000.00.
"Prime Rate" shall mean the rate of interest per annum
determined from time to time by the Bank as its prime rate in effect
at its principal office in Houston, Texas and thereafter entered in
the minutes of its Loan and Discount Committee; each change in the
Prime Rate shall be effective on the date such change is determined;
without special notice to the Maker or any other person or entity.
THE PRIME RATE IS A REFERENCE RATE AND DOES NOT NECESSARILY REPRESENT
THE LOWEST OR BEST RATE ACTUALLY CHARGED TO ANY CUSTOMER AND ANY
STATEMENT, REPRESENTATION OR WARRANTY IN THAT REGARD OR TO THAT EFFECT
IS EXPRESSLY DISCLAIMED BY THE BANK. THE BANK MAY MAKE LOANS AT RATES
OF INTEREST AT, ABOVE OR BELOW THE PRIME RATE.
"Prime Rate Loan" means a Loan which bears interest at a rate
determined by reference to the Prime Rate.
"Statutory Reserves" shall mean the difference (expressed as
a decimal) of the number one minus the aggregate of the maximum
reserve percentages (including, without limitation, any marginal,
special, emergency, or supplemental reserves) expressed as a decimal
established by the Board and any other banking authority to which the
Bank is subject: (a) with respect to the CD Rate, for new negotiable
time deposits in dollars of over $100,000 with maturities
approximately equal to the applicable Interest Period; and (b) with
respect to the Eurodollar Rate, for Eurocurrency Liabilities (as
defined in Regulation D of the Board). Such reserve percentages shall
include, without limitation, those imposed under such Regulation D.
Eurodollar Loans shall be deemed to constitute Eurocurrency
Liabilities and as such shall be deemed to be subject to such reserve
requirements without benefit of or credit for proration, exceptions or
offsets which may be available from time to time to any Bank under
such Regulation D. Statutory Reserves shall be adjusted automatically
on and as of the effective date of any change in any reserve
percentage.
"Term Notes" shall mean, collectively, (i) that certain
Promissory Note (Single Pay) dated March 17, 1995 in the original
principal amount of $2,000,000.00 executed by the Maker payable to the
order of the Bank and having a final maturity date of April 17, 1995
(the "Term Note 1") and (ii) that certain Promissory Note (Single Pay)
dated March 2, 1995 in the original principal amount of $2,000,000.00
executed by the Maker payable to the order of the Bank and having a
final maturity date of May 1, 1995 ("Term Note 2").
The unpaid principal balance of this Note at any time shall be the total of all
Loans made by the Bank to or for the benefit of the Maker, less the amount of
all payments of principal made hereon by or for the account of the maker. The
Bank's records shall serve as presumptive evidence of any and all amounts
outstanding hereunder.
Any Loan which the Bank makes hereunder shall be made on the Maker's
irrevocable notice, given not later than 10:00 A.M. (Houston, Texas time) on,
in the case of Eurodollar Loans, the third Business Day prior to the proposed
Borrowing Date or, in the case of Prime Rate Loans or CD Rate Loans, the first
Business Day prior to the proposed Borrowing Date, from the Maker to the Bank.
Each such notice of a requested borrowing (a "Notice of Requested Borrowing")
under this paragraph may be oral or written, and shall specify: (i) the
requested amount of such Loan; (ii) the proposed Borrowing Date; (iii) whether
the requested Loan is to be a Prime Rate Loan, CD Rate Loan or Eurodollar Loan;
and (iv) the Interest Period for such Loan. If any Notice of Requested
Borrowing shall be oral, the Maker shall deliver to the Bank prior to the
Borrowing Date a confirmatory written Notice of Requested Borrowing.
Page 3 of 6 Pages
Signed for Identification
By:______________________
<PAGE> 10
Revolving Promissory Note
FRIEDMAN INDUSTRIES, INCORPORATED
April 1, 1995
If at any time the Bank determines in good faith (which determination shall be
conclusive) that any change in any applicable law, rule or regulation or in the
interpretation, application or administration thereof makes it unlawful, or any
central bank or other governmental authority asserts that it is unlawful, for
the Bank or its foreign branch or branches to maintain or fund any loan by
means of dollar deposits obtained in any Eurodollar interbank market (any of
the above being described as a "Eurodollar Event"), then, at the option of the
Bank, the aggregate principal amount of the Bank's Eurodollar Loans then
outstanding, which Loans are directly affected by such Eurodollar Event, shall
be prepaid by the Maker. Upon the occurrence of any Eurodollar Event, and at
any time thereafter so long as such Eurodollar Event shall continue, the Bank
may exercise its aforesaid option by giving written notice thereof to the
Maker.
Any prepayment of any Eurodollar Loan which is required under the preceding
paragraph shall be made, together with accrued and unpaid interest and all
other amounts payable to the Bank under this Note with respect to such prepaid
Eurodollar Loan on the date stated in the notice to the Maker referred to
above, which date ("required prepayment date") shall be not less than 15 days
from the date of such notice. If any Eurodollar Loan is required to be prepaid
under the preceding paragraph, the Bank shall make on the required prepayment
date a Prime Rate Loan in the same principal amount and with an Interest Period
ending on the same day as the Eurodollar Loan so prepaid.
If any domestic or foreign law, treaty, rule or regulation (whether now in
effect or hereinafter enacted or promulgated, including Regulation D of the
Board of Governors of the Federal Reserve System) or any interpretation or
administration thereof by any governmental authority charged with the
interpretation or administration thereof (whether or not having the force of
law):
(a) changes, imposes, modifies, applies or deems applicable any
reserve, special deposit or similar requirements in respect of
any such Loan (excluding those for which the Bank is fully
compensated pursuant to adjustments made in the definition of
the CD Rate) or against assets of, deposits with or for the
account of, or credit extended or committed by, the Bank; or
(b) imposes on the Bank or the interbank eurocurrency deposit and
transfer market or the market for domestic bank certificates
or deposit any other condition affecting any such Loan;
and the result of any of the foregoing is to impose a cost to the Bank of
agreeing to make, funding or maintaining any such Loan or to reduce the amount
of any sum receivable by the Bank in respect of any such Loan, then the Bank
may notify the Maker in writing of the happening of such event and the Maker
shall upon demand pay to the Bank such additional amounts as will compensate
the Bank for such costs. Without prejudice to the survival of any other
agreement of the Maker under this Note, the obligations of the maker under this
paragraph shall survive the termination of this Note.
The Maker may on any Business Day prepay the outstanding principal amount of
any Prime Rate Loan, in whole or in part, together with accrued interest to the
date of such prepayment of the principal amount prepaid. Partial prepayments
shall be in an aggregate principal amount of $10,000.00 or a greater integral
multiple of $10,000.00. Except as specified in this paragraph, the Maker shall
have no right to prepay any Loan.
The Maker will indemnify the Bank against, and reimburse the Bank on demand
for, any loss, cost or expense incurred or sustained by the Bank (including
without limitation any loss, cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by the Bank to
fund or maintain Loans bearing interest at the CD Rate or the Eurodollar Rate)
as a result of: (a) any payment or prepayment (whether permitted by the Bank or
required hereunder or otherwise) of all or a portion of any Eurodollar Loan or
CD Rate Loan on a day other than Maturity Date of such Loan; (b) any payment or
prepayment, whether required hereunder or otherwise, of any Eurodollar Loan or
CD Rate Loan made after the delivery of a Notice of Requested Borrowing but
before the applicable Borrowing Date if such payment or prepayment prevents the
proposed Loan from becoming fully effective; or (c) the failure of any
Eurodollar Loan or CD Rate Loan to be made by the Bank due to any action or
inaction of the Maker. For purposes of this paragraph, funding losses arising
by reason of liquidation or reemployment of deposits or other funds acquired by
the Bank to fund or maintain Loans bearing interest at the CD Rate or
Eurodollar Rate shall be calculated as the remainder obtained by subtracting:
(i) the yield (reflecting both stated interest rate and discount, if any) to
maturity of obligations of the United States Treasury in an amount equal or
comparable to such Loan for the period of time commencing on the date of the
payment, prepayment or change of rate as provided above and ending on the last
day of the subject Interest Period; from (ii) the interest payable at the CD
Rate or Eurodollar Rate for the period commencing on the date of such payment,
prepayment or change of rate and ending on the last day of such Interest
Period. Such funding losses and other costs and expenses shall be calculated
and billed by the Bank and such bill shall, as to the costs incurred, be
conclusive absent manifest error.
Page 4 of 6 Pages
Signed for Identification
By:______________________
<PAGE> 11
Revolving Promissory Note
FRIEDMAN INDUSTRIES, INCORPORATED
April 1, 1995
If after the date of this Note, the Bank shall have determined that the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by the
Bank with any request or directive regarding capital adequacy (whether or not
having the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on the
Bank's capital as a consequence of making any Loans hereunder to a level below
that which the Bank could have achieved but for such adoption, change or
compliance (taking into consideration the Bank's policies with respect to
capital adequacy) by an amount deemed by the Bank in good faith to be material,
then from time to time, the Maker shall pay to the Bank such additional amount
or amounts as will compensate the Bank for such reduction.
A certificate of the Bank setting forth such amount or amounts as shall be
necessary to compensate the Bank as specified in the immediately preceding
paragraphs above shall be delivered as soon as practicable to the Maker and
shall be conclusive and binding, absent manifest error. The Maker shall pay
the Bank the amount shown as due on any such certificate within 15 days after
Bank delivers such certificate. In preparing such certificate, the Bank may
employ such assumptions and allocations of costs and expenses as it shall in
good faith deem reasonable and may use any reasonable averaging and attribution
method.
If any payment of interest or principal herein provided for is not paid when
due when the owner or holder of this Note may at its option, by notice to the
Maker, declare the unpaid principal balance of all Loans, all accrued and
unpaid interest thereon and all other amounts payable under this Note to be
forthwith due and payable, whereupon the Loans, all such interest and all such
amounts shall become and be forthwith due and payable in full, without
presentment, demand, protest, notice of intent to accelerate, notice of actual
acceleration or further notice of any kind, all of which are hereby expressly
waived by the Maker.
If default is made in the payment of this Note and it is placed in the hands of
an attorney for collection, or collected through probate or bankruptcy
proceedings, or if suit is brought on the same, the Maker agrees to pay
attorneys' fees and all costs and expenses.
This Note (i) is issued by the Maker to evidence Loans outstanding from time to
time not to exceed in the aggregate the Maximum Loan Total; (ii) is the
Revolving Note as defined in that certain Amended and Restated Letter Agreement
dated as of April 1, 1995 executed by and between the Maker and the Bank and
delivered to the Bank (the "Letter Agreement"); and (iii) is subject to and
accorded all the rights and protections under the terms and conditions of the
Letter Agreement.
The Maker warrants and represents to the Bank, and to all other owners and/or
holders of any indebtedness evidenced hereby, that all Loans evidenced by this
Note are for business, commercial, investment or other similar purpose and not
primarily for personal, family, household or agricultural use, as such terms
are used in Chapter One of the Texas Credit Code, Tex. Rev. Civ. Stat. arts.
5069-1.01 et. seq.
The Maker warrants and represents to the Bank and to all other owners or
holders of this Note that no Loans shall be used for the purchase or carrying
of any "margin stock" within the meaning of Regulation "U" of the Board of
Governors of the Federal Reserve System, 12 C.F.R. Part. 221, as in effect on
the date hereof.
Except as otherwise specified in this Note, the Maker and any and all
co-makers, endorsers, guarantors and sureties hereby severally waive grace,
presentment, demand, notice of default, notice of intent to accelerate, notice
of acceleration, and all other demands and notices of any nature or type
whatsoever, in connection with the delivery, acceptance, performance, default,
dishonor or enforcement of, or entry of judgment in connection with this Note,
and further waive the filing of suit hereon for the purpose of fixing
liability.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THIS
NOTE SHALL BE PERFORMABLE FOR ALL PURPOSES IN HARRIS COUNTY, TEXAS, AND THE
MAKER AND THE BANK AGREE THAT HARRIS COUNTY, TEXAS IS PROPER VENUE FOR ANY
ACTION OR PROCEEDING BROUGHT BY THE MAKER OR THE BANK, WHETHER IN CONTRACT,
TORT, OR OTHERWISE. ANY ACTION OR PROCEEDING AGAINST THE MAKER MAY BE BROUGHT
IN ANY STATE OR FEDERAL COURT IN HARRIS COUNTY, TEXAS. THE MAKER HEREBY
IRREVOCABLY (A) SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND
(B) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY
SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT OR THAT ANY SUCH COURT IS
AN INCONVENIENT FORUM. THE
Page 5 of 6 Pages
Signed for Identification
By:______________________
<PAGE> 12
Revolving Promissory Note
FRIEDMAN INDUSTRIES, INCORPORATED
April 1, 1995
MAKER AGREES THAT SERVICE OR PROCESS UPON IT MAY BE MADE BY CERTIFIED OR
REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS SPECIFIED BELOW.
The Maker and the Bank expressly agree, pursuant to Article 15.10(b) of Chapter
15 ("Chapter 15") of the Texas Credit Code, that Chapter 15 shall not apply to
this Note or to any Loan and that this Note and all such Loans shall not be
governed by or subject to the provisions of Chapter 15 in any manner
whatsoever.
It is the intention of the Maker and the Bank to comply with usury laws in
force in the State of Texas and in the United States of America as applicable.
Anything in this Note to the contrary notwithstanding, the Maker shall never be
required to pay unearned interest on this Note and shall never be required to
pay interest on this Note at a rate in excess of the Highest Lawful Rate, and
if the effective rate of interest which would otherwise be payable under this
Note would exceed the Highest Lawful Rate, or if the holder of the Note shall
receive any unearned interest or shall receive monies that are deemed to
constitute interest which would increase the effective rate of interest payable
under this Note to a rate in excess of the Highest Lawful Rate, then: (i) the
amount of interest which would otherwise be payable under this Note shall be
reduced to the amount allowed under applicable law; and (ii) any unearned
interest paid by the Maker or any interest paid by the Maker in excess of the
Highest Lawful Rate shall, at the option of the holder of this Note, be either
refunded to the Maker or credited on the principal of this Note. It is further
agreed that, without limitation of the foregoing, all calculations of the rate
of interest contracted for, charged or received by the Bank or any holder of
this Note that are made for the purpose of determining whether such rate
exceeds the Highest Lawful Rate shall be made, to the extent permitted by usury
laws applicable to the Bank (now or hereafter enacted), by amortizing,
prorating and spreading in equal parts during the period of full stated term of
the Loans evidenced by this Note all interest at any time contracted for,
charged or received by the Bank in connection therewith.
The Bank reserves the right in its sole discretion without notice to the Maker,
to sell participations or assign its interest, or both in all or part of the
Loans, the Note, or the Line of Credit.
THIS NOTE AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the Maker has executed this Note effective the day, month
and year first aforesaid.
MAKER: FRIEDMAN INDUSTRIES, INCORPORATED
By:_____________________________________________________________________________
Name:___________________________________________________________________________
Title:__________________________________________________________________________
Acknowledged for purposes of
notice pursuant to the above
cited statute by:
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By:_____________________________________________________________________________
Name:___________________________________________________________________________
Title:__________________________________________________________________________
Page 6 of 6 Pages
<PAGE> 1
EXHIBIT 13
FRIEDMAN
INDUSTRIES,
INCORPORATED
1995
ANNUAL REPORT
<PAGE> 2
[RECYCLE LOGO] printed on recycled paper
<PAGE> 3
FRIEDMAN INDUSTRIES, INCORPORATED FRIEDMAN INDUSTRIES, INCORPORATED
- - --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Net sales.................................. $ 97,968,805 $ 70,908,065
Net earnings............................... $ 2,458,132 $ 1,691,075
Net earnings per share*.................... $ 0.42 $ 0.29
Cash dividends per share*.................. $ 0.20 $ 0.14
Stock dividends per share.................. 5% 5%
Stockholders' equity....................... $ 18,722,781 $ 17,430,337
Stockholders' equity per share*............ $ 3.21 $ 2.99
Working capital............................ $ 20,140,221 $ 15,480,138
* Adjusted for stock dividends.
</TABLE>
- - --------------------------------------------------------------------------------
TO OUR SHAREHOLDERS:
Fiscal 1995 results were substantially better than the results recorded
during fiscal 1994. Most of the sales increase was generated by our new Arkansas
coil facility which became operational in January 1994. In addition, the results
from our other coil divisions and from our tubular products division improved
during fiscal 1995. In management's opinion, a stronger U.S. economy produced
improved market conditions for the Company's products and services although
intense competition continued to exert pressure on margins, which were
approximately the same, year to year.
During fiscal 1995 the Company completed several capital improvements and
commenced others. The Arkansas coil facility warehouse was enlarged and other
improvements were made to increase the productive capacity of this operation. In
addition, the Company began construction of a coil slitter line at the tubular
products division. This line will be capable of slitting large steel coils from
any mill source and is expected to increase efficiency and decrease waste
associated with pipe production. A total of $470,612 was invested in capital
improvements during fiscal 1995. While none of these investments were considered
substantial, they emphasize the Company's commitment to improve its operations
in order to remain competitive in a very competitive industry.
You are invited to attend the Annual Meeting of Shareholders scheduled to
start at 11:00 a.m. (local time) on August 25, 1995, in the offices of Fulbright
and Jaworski L.L.P., 1301 McKinney, Houston, Texas.
Sincerely,
/s/ JACK FRIEDMAN
Jack Friedman
Chairman of the Board
and Chief Executive Officer
1
<PAGE> 4
FRIEDMAN INDUSTRIES, INCORPORATED FRIEDMAN INDUSTRIES, INCORPORATED
OFFICERS
Jack Friedman
Chairman of the Board and
Chief Executive Officer
Harold Friedman
President and Chief Operating Officer
Ronald L. Burgerson
Vice President -- Coil Products
(Lone Star, Texas)
William Crow
Vice President and President of Texas
Tubular Products Division
Benny Harper
Vice President and Secretary -- Treasurer
Ted Henderson
Vice President -- Tubular Products
Dale Ray
Vice President -- Coil Products
(Hickman, Arkansas)
Thomas Thompson
Vice President -- Sales
Charles W. Hall
Assistant Secretary
DIRECTORS
Jack Friedman
Chairman of the Board and
Chief Executive Officer
Harold Friedman
President and Chief Operating Officer
Charles W. Hall
Partner, Fulbright & Jaworski L.L.P. (law firm)
Houston, Texas
Alan M. Rauch
President, Ener-Tex
International, Inc.
(oilfield equipment sales)
Houston, Texas
Hershel M. Rich
Private investor and
business consultant
Houston, Texas
Henry Spira
Retired; Former Vice President,
Friedman Industries, Incorporated
Houston, Texas
Kirk K. Weaver
Chairman of the Board and
Chief Executive Officer,
LTI Technologies, Inc.
(technical services)
Houston, Texas
COMPANY OFFICES
MAIN OFFICE
4001 Homestead Road
Houston, Texas 77028
713-672-9433
SALES OFFICE
1121 Judson Road
Longview, Texas 75606
903-758-3431
COUNSEL
Fulbright & Jaworski L.L.P.
1301 McKinney, 51st Floor
Houston, Texas 77010
AUDITORS
Ernst & Young LLP
1221 McKinney, Suite 2400
Houston, Texas 77010
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
STOCK EXCHANGE LISTING
American Stock Exchange
(Trading symbol: FRD)
APPROXIMATE NUMBER OF
SHAREHOLDERS OF RECORD
800 at May 19, 1995
ANNUAL REPORT ON FORM 10-K
Shareholders may obtain without charge a copy of the Company's Annual Report on
Form 10-K for the year ended March 31, 1995 as filed with the Securities and
Exchange Commission. Written requests should be addressed to: Benny Harper, Vice
President, Friedman Industries, Incorporated, P.O. Box 21147, Houston, Texas
77226.
2
<PAGE> 5
FRIEDMAN INDUSTRIES, INCORPORATED FRIEDMAN INDUSTRIES, INCORPORATED
DESCRIPTION OF BUSINESS
Friedman Industries, Incorporated is in the steel processing and
distribution business. The Company has two product classifications: coil
processing (steel sheet and plate) and tubular products.
At its facilities in Lone Star, Texas, Houston, Texas, and Hickman,
Arkansas, the Company processes semi-finished, hot-rolled steel coils into flat,
finished sheet and plate, and sells these products on a wholesale,
rapid-delivery basis in competition with steel mills, importers and steel
service centers. The Company also processes customer-owned coils on a fee basis.
The Company purchases a substantial amount of its annual coil tonnage from Lone
Star Steel Company ("LSS") and Nucor Steel Company ("NSC"). Loss of LSS or NSC
as a source of coil supply could have a material adverse effect on the Company's
business.
Steel sheet and plate and coil processing services are sold directly
through the Company's own sales force to approximately 330 customers located
primarily in the midwestern, southwestern and southeastern sections of the
United States. These products and services are sold principally to steel
distributors and to customers fabricating steel products such as storage tanks,
steel buildings, farm machinery and equipment, construction equipment,
transportation equipment, conveyors, and other similar products.
The Company, through its Texas Tubular Products operation located in Lone
Star, Texas, markets and processes pipe. In addition, this division manufactures
pipe of which a substantial amount is sold to LSS. Pipe is sold nationally to
approximately 240 customers. The Company processes its own tubular products and
processes pipe for LSS on a fee basis. Pursuant to an informal arrangement with
LSS, the Company purchases a substantial portion of its pipe from LSS. Loss of
LSS as a source of pipe supply or as a customer of manufactured pipe could have
a material adverse effect on the Company's business.
During fiscal 1994, the Company discontinued the operations of its wholly
owned subsidiary, Royal Fasteners Corporation, which was engaged in the
marketing of fastener products.
Significant financial information relating to the Company's product groups
is contained in Note 8 of Notes to the Company's Consolidated Financial
Statements appearing herein.
------------------
RANGE OF HIGH AND LOW SALES PRICES OF COMMON STOCK
<TABLE>
<CAPTION>
FISCAL YEAR 1995 FISCAL YEAR 1994
------------------ ------------------
HIGH LOW HIGH LOW
---- ----- ---- -----
<S> <C> <C> <C> <C>
First Quarter........................................................ 4 5/8 4 4 3/8 2 7/8
Second Quarter....................................................... 4 5/8 3 7/8 4 9/16 3 5/8
Third Quarter........................................................ 4 1/8 3 1/2 4 5/8 3 3/4
Fourth Quarter....................................................... 4 3/4 4 4 3/4 4 1/8
</TABLE>
------------------
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK
<TABLE>
<CAPTION>
FISCAL YEAR 1995 FISCAL YEAR 1994
------------------ ------------------
CASH STOCK CASH STOCK
---- ----- ---- -----
<S> <C> <C> <C> <C>
First Quarter........................................................ $.05 - $.03 -
Second Quarter....................................................... $.05 - $.04 -
Third Quarter........................................................ $.06 - $.04 -
Fourth Quarter....................................................... $.05 5% $.04 5%
(Per share amounts above have not been adjusted to reflect stock dividends.)
</TABLE>
3
<PAGE> 6
FRIEDMAN INDUSTRIES, INCORPORATED FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................... $ 664,527 $ 330,289
Accounts receivable, less allowance for doubtful accounts of
$5,970 in 1995 and $5,900 in 1994.......................... 8,670,636 7,690,282
Inventories -- Note 7....................................... 16,558,774 12,859,186
Other....................................................... 62,618 134,524
----------- -----------
TOTAL CURRENT ASSETS................................... 25,956,555 21,014,281
PROPERTY, PLANT AND EQUIPMENT
Land........................................................ 198,021 198,021
Buildings and yard improvements............................. 2,595,826 2,390,090
Machinery and equipment..................................... 11,320,928 11,127,460
Less accumulated depreciation............................... (8,699,581) (8,179,338)
----------- -----------
5,415,194 5,536,233
OTHER ASSETS
Cash value of officers' life insurance...................... 703,113 633,907
----------- -----------
TOTAL ASSETS........................................... $32,074,862 $27,184,421
=========== ===========
</TABLE>
4
<PAGE> 7
FRIEDMAN INDUSTRIES, INCORPORATED FRIEDMAN INDUSTRIES, INCORPORATED
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 31
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses....................... $ 4,270,809 $ 4,749,810
Current portion of long-term debt -- Note 3................. 800,000 200,000
Dividends payable........................................... 277,742 211,584
Income taxes payable........................................ 14,658 --
Contribution to profit-sharing plan -- Note 6............... 200,000 180,000
Employee compensation and related expenses.................. 253,125 192,749
----------- -----------
TOTAL CURRENT LIABILITIES.............................. 5,816,334 5,534,143
LONG-TERM DEBT, less current portion -- Notes 3 and 4............ 7,000,000 3,800,000
DEFERRED INCOME TAXES............................................ 422,747 342,941
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS --
Note 6......................................................... 113,000 77,000
STOCKHOLDERS' EQUITY -- Note 2
Common Stock, par value $1 per share:
Authorized shares -- 10,000,000
Issued and outstanding shares -- 5,554,858 in 1995;
and 5,289,598 in 1994.................................. 5,554,858 5,289,598
Additional paid-in capital.................................. 20,571,057 19,678,497
Retained earnings........................................... (7,403,134) (7,537,758)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY............................. 18,722,781 17,430,337
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............. $32,074,862 $27,184,421
=========== ===========
</TABLE>
See accompanying notes.
5
<PAGE> 8
FRIEDMAN INDUSTRIES, INCORPORATED FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
---------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Sales........................................................... $97,968,805 $70,908,065 $56,230,967
Costs and expenses:
Cost of products sold....................................... 90,701,372 65,739,495 52,472,711
Selling, general and administrative......................... 3,227,646 2,693,918 2,513,993
Interest.................................................... 399,098 94,719 41,475
----------- ---------- ----------
94,328,116 68,528,132 55,028,179
----------- ---------- ----------
3,640,689 2,379,933 1,202,788
Interest and other income....................................... 83,753 65,629 19,483
----------- ---------- ----------
EARNINGS BEFORE FEDERAL INCOME TAXES AND ACCOUNTING
CHANGES.............................................. 3,724,442 2,445,562 1,222,271
Federal income taxes:
Current..................................................... 1,186,466 774,949 215,042
Deferred.................................................... 79,844 56,538 200,957
----------- ---------- ----------
1,266,310 831,487 415,999
----------- ---------- ----------
EARNINGS BEFORE ACCOUNTING CHANGES..................... 2,458,132 1,614,075 806,272
Cumulative effect of accounting changes -- Notes 5 and 6........ -- 77,000 --
----------- ---------- ----------
NET EARNINGS........................................... $ 2,458,132 $1,691,075 $ 806,272
=========== ========== ==========
Average number of common shares outstanding..................... 5,832,601 5,830,131 5,829,691
=========== ========== ==========
Earnings per share:
Before accounting changes................................... $ .42 $ .28 $ .14
Cumulative effect of accounting changes..................... -- .01 --
----------- ---------- ----------
NET EARNINGS PER SHARE................................. $ .42 $ .29 $ .14
=========== ========== ==========
</TABLE>
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
--------- ----------- -----------
<S> <C> <C> <C>
Balance at March 31, 1992....................................... $4,796,502 $18,514,441 $(7,033,151)
Net earnings.................................................... -- -- 806,272
Stock dividend (5%)............................................. 239,405 658,364 (899,341)
Cash dividends ($.10 per share)................................. -- -- (553,949)
---------- ----------- -----------
BALANCE AT MARCH 31, 1993.............................. 5,035,907 19,172,805 (7,680,169)
Net earnings.................................................... -- -- 1,691,075
Exercise of stock options....................................... 2,315 2,940 --
Stock dividend (5%)............................................. 251,376 502,752 (755,441)
Cash dividends -- ($.14 per share).............................. -- -- (793,223)
---------- ----------- -----------
BALANCE AT MARCH 31, 1994.............................. 5,289,598 19,678,497 (7,537,758)
Net earnings.................................................... -- -- 2,458,132
Exercise of stock options....................................... 1,216 1,411 --
Stock dividend (5%)............................................. 264,044 891,149 (1,157,100)
Cash dividends -- ($.20 per share).............................. -- -- (1,166,408)
---------- ----------- -----------
BALANCE AT MARCH 31, 1995.............................. $5,554,858 $20,571,057 $(7,403,134)
========== ============ ============
</TABLE>
See accompanying notes.
6
<PAGE> 9
FRIEDMAN INDUSTRIES, INCORPORATED FRIEDMAN INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings..................................... $ 2,458,132 $ 1,691,075 $ 806,272
Adjustments to reconcile net earnings to cash
provided by (used in) operating activities:
Depreciation................................ 575,336 362,715 322,095
Disposals of property, plant and
equipment................................. 16,315 -- --
Provision for losses on accounts
receivable................................ 13,645 1,812 38,903
Provision for deferred taxes................ 79,844 56,538 200,957
Cumulative effect of accounting changes..... -- (77,000) --
Decrease (increase) in operating assets:
Accounts receivable......................... (993,999) (2,190,801) (2,170,868)
Inventories................................. (3,699,588) (3,278,681) 449,795
Other....................................... 71,906 183,164 (108,018)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses....... (479,001) 1,890,870 648,680
Contribution to profit-sharing plan......... 20,000 28,000 (8,000)
Employee compensation and related
expenses.................................. 60,376 85,271 4,033
Postretirement benefit other than
pensions.................................. 36,000 27,000 --
Income taxes payable........................ 14,658 -- --
----------- ------------ -----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES................................ (1,826,376) (1,220,037) 183,849
INVESTING ACTIVITIES
Purchase of property, plant and equipment........ (470,612) (2,529,888) (166,373)
Increase in cash value of officers' life
insurance...................................... (69,206) (54,295) (32,124)
Other............................................ -- -- 10,402
----------- ------------ -----------
NET CASH USED IN INVESTING ACTIVITIES............ (539,818) (2,584,183) (188,095)
FINANCING ACTIVITIES
Cash dividends paid.............................. (1,097,661) (732,716) (498,804)
Proceeds from borrowings of long-term debt....... 4,000,000 4,000,000 --
Principal payments on long-term debt............. (200,000) (280,000) (280,000)
Cash paid on fractional shares from stock
dividend....................................... (1,907) (1,313) (1,572)
Proceeds from issuing stock under employee
plans.......................................... -- 5,255 --
----------- ------------ -----------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES................................ 2,700,432 2,991,226 (780,376)
----------- ------------ -----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................... 334,238 (812,994) (784,622)
Cash and cash equivalents at beginning of year... 330,289 1,143,283 1,927,905
----------- ------------ -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR.... $ 664,527 $ 330,289 $ 1,143,283
=========== =========== ===========
</TABLE>
See accompanying notes.
7
<PAGE> 10
FRIEDMAN INDUSTRIES, INCORPORATED FRIEDMAN INDUSTRIES, INCORPORATED
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION: The consolidated financial statements include the
accounts of Friedman Industries, Incorporated and its subsidiary (which are
collectively referred to herein as the "Company"). All material intercompany
amounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid debt
instruments purchased with maturities of three months or less to be cash
equivalents.
INVENTORIES: The following is a summary of inventory by product group:
<TABLE>
<CAPTION>
MARCH 31
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Coil................................................... $ 5,870,349 $ 5,406,424
Tubular................................................ 10,688,425 7,452,762
------------ ------------
$ 16,558,774 $ 12,859,186
============ ============
</TABLE>
Coil inventory consists primarily of raw materials. Tubular inventory
consists of both raw materials and finished goods. Inventories are valued at the
lower of cost or replacement market. Cost for the Company's coil inventory is
determined under the last-in, first-out (LIFO) method. Cost for all other
inventories is determined using the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated on
the basis of cost. Depreciation is calculated principally by the straight-line
method over the estimated useful lives of the various classes of assets.
Interest costs incurred during construction projects are capitalized as part of
the cost of such assets.
EARNINGS PER SHARE: Earnings per share are based on the weighted average
number of common shares outstanding. Stock options are not included in the
computation of the weighted average number of common shares outstanding since
their effect is not significant. Fully diluted earnings per share are not
presented because they are not materially dilutive.
In addition, all applicable per share amounts herein have been
retroactively adjusted to give effect to a 5% stock dividend distributed May 19,
1995.
SUPPLEMENTAL CASH FLOW INFORMATION: The Company paid interest of
approximately $373,000 in 1995, $81,000 in 1994 and $48,000 in 1993. The Company
paid income taxes, net of refunds, of $1,130,000 in 1995, $660,000 in 1994 and
$255,000 in 1993.
ECONOMIC RELATIONSHIP: Lone Star Steel Company ("LSS") and Nucor Steel
Company ("NSC") supply a significant amount of steel products to the Company.
Loss of either of these mills as a source of supply could have a material
adverse effect on the Company. Additionally, the Company derives revenue by
selling a substantial amount of its manufactured pipe to LSS and by providing
tubular processing services for LSS. Total sales to LSS were approximately $10.4
million in 1995. Loss of this mill as a customer could have a material adverse
effect on the Company's business.
2. CAPITAL STOCK AND STOCK OPTIONS
Under the Company's Stock Option Plan of 1974, as amended through March 24,
1982, and the 1989 Incentive Stock Option Plan, incentive options were granted
to certain officers and key
8
<PAGE> 11
FRIEDMAN INDUSTRIES, INCORPORATED FRIEDMAN INDUSTRIES, INCORPORATED
2. CAPITAL STOCK AND STOCK OPTIONS (CONTINUED)
employees to purchase Common Stock of the Company. The following is a summary of
activity relative to options outstanding during the years ended March 31
(adjusted for stock dividends):
<TABLE>
<CAPTION>
1995 1994 1993
------------------ ------------------- -----------------------
OPTION OPTION OPTION
SHARES PRICE SHARES PRICE SHARES PRICE
------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.............. 79,129 $ 2.06 82,958 $ 2.06 94,112 $2.06-3.41
Granted....................................... -- -- -- -- -- --
Cancelled..................................... -- -- (1,277) 2.06 (11,154) 2.06-3.41
Exercised..................................... (1,277) 2.06 (2,552) 2.06 -- --
------ ------ -------
Outstanding at end of year (all of which are
exercisable)................................ 77,852 $ 2.06 79,129 $ 2.06 82,958 $2.06
====== ====== =======
</TABLE>
Under the terms of the 1974 plan, no additional options may be granted.
Pursuant to the terms of the 1989 plan, 109,760 additional options may be
granted. The exercise price of all previously granted options equaled or
exceeded the fair market price of the Common Stock on the date of grant. No
charges to earnings have been made as a result of granting or exercising
options.
The Company has 1,000,000 authorized shares of Cumulative Convertible
Preferred Stock with a par value of $1 per share. The Stock may be issued in one
or more series, and the Board of Directors is authorized to fix the
designations, preferences, rights, qualifications, limitations and restrictions
of each series, except that any series must provide for cumulative dividends and
must be convertible into Common Stock.
3. LONG-TERM DEBT
The Company's long-term debt includes a $3,800,000 note payable at an
interest rate equal to the lending bank's prime rate. Principal payments in the
amount of $200,000 plus interest are made quarterly through December 1, 1999.
The annual principal payments required on long-term debt during the next five
years are as follows: 1996 -- $800,000; 1997 -- $800,000; 1998 -- $800,000; and
1999 -- $800,000 and 1999 -- $600,000.
4. LINE OF CREDIT
The Company has a line of credit arrangement with a bank which is
unsecured, bears interest at a maximum of the bank's prime rate, expires
December 31, 1995 and is reviewed annually for renewal. There are no commitment
fees or compensating balance requirements under this arrangement. At March 31,
1995, the unused portion of this credit line was $1,000,000. Subsequent to
year-end, the Company negotiated to increase the line of credit arrangement from
$5,000,000 to $8,000,000 and to extend its expiration to April 1, 1998.
Accordingly, the $4,000,000 outstanding balance under this line of credit has
been classified as long-term debt at March 31, 1995.
5. INCOME TAXES
Effective April 1, 1993, the Company adopted Statement of Financial
Accounting Standards 109 (SFAS 109), "Accounting for Income Taxes." The adoption
of SFAS 109 changed the Company's method of accounting for income taxes from the
deferred approach to an asset and liability approach. The asset and liability
approach requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the financial
reporting basis and tax basis of assets and liabilities. The cumulative effect
of adopting SFAS 109 as of April 1, 1993 increased net earnings by $110,000 or
$.02 per share.
9
<PAGE> 12
FRIEDMAN INDUSTRIES, INCORPORATED FRIEDMAN INDUSTRIES, INCORPORATED
5. INCOME TAXES (CONTINUED)
Significant components of the Company's consolidated deferred tax assets
and liabilities are as follows:
<TABLE>
<CAPTION>
MARCH 31
----------------------
1995 1994
--------- ---------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Depreciation........................................ $ 520,490 $ 426,627
DEFERRED TAX ASSETS:
Inventory capitalization............................ 53,738 37,854
Postretirement benefits other than pensions......... 38,420 26,180
Other............................................... 5,585 19,652
--------- ---------
Total deferred tax assets............................. 97,743 83,686
--------- ---------
Net deferred tax liability............................ $ 422,747 $ 342,941
========= =========
</TABLE>
6. PROFIT-SHARING PLAN AND OTHER POSTRETIREMENT BENEFITS
The Company has a defined-contribution plan ("Plan") covering substantially
all employees, including officers. Company contributions, which are made at the
discretion of the Board of Directors in an amount not to exceed 15% of the total
compensation paid during the year to all eligible employees, were $200,000 for
the year ended March 31, 1995, $180,000 for the year ended March 31, 1994 and
$152,000 for the year ended March 31, 1993. Contributions, Plan earnings and
forfeitures of terminated participants' nonvested accounts are allocated to the
individual accounts of participating employees based on compensation received
during the Plan year and years of active service with the employer.
In addition, certain health care benefits are provided for retired
employees. Employees with a minimum of 20 years of employment with the Company
who retire at 65 or older are eligible. Effective April 1, 1993, the Company
adopted Statement of Financial Accounting Standards 106, "Employer's Accounting
for Postretirement Benefits Other than Pensions," which provides that the
Company follow an accrual method of accounting for the postretirement benefits
other than pensions. Such benefits, in prior years, were accounted for on a
pay-as-you-go basis. The Company elected to immediately recognize as a charge to
1994 earnings the cumulative effect of the change in accounting for
postretirement benefits of $33,000 ($50,000 liability net of a deferred tax
asset of $17,000). The $50,000 liability represents the accumulated
postretirement benefit obligation existing at adoption. The Company has not
funded the cost of the postretirement health care plan.
7. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
LIFO FIFO TOTAL
METHOD METHOD INVENTORIES
----------- ------------ ------------
<S> <C> <C> <C>
March 31, 1995.................... $ 5,870,349 $ 10,688,425 $ 16,558,774
March 31, 1994.................... $ 5,406,424 $ 7,452,762 $ 12,859,186
</TABLE>
At March 31, 1995 and 1994, the current replacement cost of inventories exceeded
their LIFO value by approximately $4,123,000 and $3,353,000, respectively.
8. INDUSTRY SEGMENT DATA
The Company is engaged in the steel processing and distribution business.
Within the Company, there are two product groups: coil processing (steel sheet
and plate) and tubular products. Coil processing converts steel coils into flat
sheet and plate steel cut to customer
10
<PAGE> 13
FRIEDMAN INDUSTRIES, INCORPORATED FRIEDMAN INDUSTRIES, INCORPORATED
8. INDUSTRY SEGMENT DATA (CONTINUED)
specifications. Through its Texas Tubular operation, the Company purchases,
processes, manufactures and markets tubular products. This operation processes
its own tubular products and processes pipe on a fee basis for LSS. In fiscal
1994, the Company ceased the operations of its wholly owned subsidiary, Royal
Fasteners Corporation.
The following is a summary of significant financial information relating to
the product groups:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
----------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES
Coil processing................................ $ 64,138,520 $ 42,921,520 $ 35,844,546
Tubular products............................... 33,830,285 27,986,545 19,892,823
Fastener products.............................. -- -- 493,598
------------ ------------ ------------
TOTAL NET SALES........................ $ 97,968,805 $ 70,908,065 $ 56,230,967
============ ============ ============
OPERATING PROFIT (LOSS):
Coil processing................................ $ 1,975,775 $ 1,069,349 $ 1,324,366
Tubular products............................... 3,147,319 2,315,254 1,016,666
Fastener products.............................. -- -- (312,335)
------------ ------------ ------------
TOTAL OPERATING PROFIT................. 5,123,094 3,384,603 2,028,697
============ ============ ============
Corporate expenses............................. (1,083,307) (909,951) (784,434)
Interest expense............................... (399,098) (94,719) (41,475)
Interest and other income...................... 83,753 65,629 19,483
------------ ------------ ------------
TOTAL EARNINGS BEFORE TAXES............ $ 3,724,442 $ 2,445,562 $ 1,222,271
============ ============ ============
IDENTIFIABLE ASSETS:
Coil processing................................ $ 14,312,010 $ 13,290,525 $ 7,225,950
Tubular products............................... 16,309,266 12,749,723 10,843,358
Fastener products.............................. -- -- 367,107
------------ ------------ ------------
30,621,276 26,040,248 18,436,415
General corporate assets....................... 1,453,586 1,144,173 2,055,026
------------ ------------ ------------
TOTAL ASSETS........................... $ 32,074,862 $ 27,184,421 $ 20,491,441
============ ============ ============
DEPRECIATION:
Coil processing................................ $ 287,308 $ 108,823 $ 49,302
Tubular products............................... 280,982 250,131 262,141
Fastener products.............................. -- -- 6,881
Corporate and other............................ 7,046 3,761 3,771
------------ ------------ ------------
$ 575,336 $ 362,715 $ 322,095
============ ============ ============
CAPITAL EXPENDITURES:
Coil processing................................ $ 298,832 $ 2,336,292 $ 107,579
Tubular products............................... 167,293 169,468 57,580
Corporate assets............................... 4,487 24,128 1,866
------------ ------------ ------------
$ 470,612 $ 2,529,888 $ 167,025
============ ============ ============
</TABLE>
Operating profit is total revenue less operating expenses, excluding
general corporate expenses, interest expense and interest and other income.
Corporate assets consist primarily of cash and cash equivalents and the cash
value of officers' life insurance. There are no sales between product groups.
11
<PAGE> 14
FRIEDMAN INDUSTRIES, INCORPORATED FRIEDMAN INDUSTRIES, INCORPORATED
9. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of unaudited quarterly results of operations for
the years ended March 31, 1995 and 1994 (per share amounts have been adjusted
for subsequent stock dividends):
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------
June 30 September 30 December 31 March 31
1994 1994 1994 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales................... $ 22,998,712 $24,651,141 $24,228,187 $ 26,090,765
Gross profit................ 1,514,769 1,797,633 1,941,393 2,013,638
Net earnings................ 423,618 612,586 719,840 702,088
Net earnings per share...... .07 .11 .12 .12
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------
June 30 September 30 December 31 March 31
1993 1993 1993 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales................... $ 17,425,770 $16,563,233 $16,758,720 $ 20,160,342
Gross profit................ 1,160,079 1,172,617 1,258,794 1,577,080
Earnings before accounting
changes................... 349,911 328,001 427,686 508,477
Cumulative effect of
accounting changes........ 77,000 -- -- --
Net earnings................ 426,911 328,001 427,686 508,477
Earnings per share before
accounting changes........ .06 .06 .07 .09
Cumulative effect of
accounting changes per
share..................... .01 -- -- --
Net earnings per share...... .07 .06 .07 .09
</TABLE>
10. CONCENTRATION OF RECEIVABLES
The Company's coil processing operations include a concentration of sales
primarily in the southwestern and southeastern sections of the United States,
which are principally to customers in the steel distributing and fabricating
industries. The Company performs periodic credit evaluations of its customers'
financial conditions and generally does not require collateral. Receivables
generally are due within 30 days.
12
<PAGE> 15
FRIEDMAN INDUSTRIES, INCORPORATED FRIEDMAN INDUSTRIES, INCORPORATED
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Friedman Industries, Incorporated
We have audited the accompanying consolidated balance sheets of Friedman
Industries, Incorporated as of March 31, 1995 and 1994, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended March 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Friedman
Industries, Incorporated, at March 31, 1995 and 1994, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended March 31, 1995, in conformity with generally accepted accounting
principles.
(ERNST & YOUNG LOGO)
May 26, 1995
Houston, Texas
------------------------------------------
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
--------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales.............................. $ 97,968,805 $ 70,908,065 $ 56,230,967 $ 42,609,330 $ 50,264,851
Net earnings........................... 2,458,132 1,691,075(A) 806,272 483,720 866,259
Total assets........................... 32,074,862 27,184,421 20,491,441 19,619,875 20,936,487
Long-term debt......................... 7,000,000 3,800,000 -- 280,000 1,960,000
Stockholders' equity................... 18,722,781 17,430,337 16,528,543 16,277,792 16,274,914
Net earnings per share................. 0.42 0.29(A) 0.14 0.08 0.15
Cash dividends declared per share
adjusted for stock dividends......... 0.20 0.14 0.10 0.08 0.13
</TABLE>
(A) Includes the cumulative effect of accounting changes which increased net
earnings $77,000 ($.01 per share).
See also Note 1 of Notes to the Company's Financial Statements herein which
describes the Company's relationship with its primary suppliers of steel
products.
13
<PAGE> 16
FRIEDMAN INDUSTRIES, INCORPORATED FRIEDMAN INDUSTRIES, INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Year ended March 31, 1995 compared to year ended March 31, 1994
During the year ended March 31, 1995, sales, cost of products sold and
gross profit increased $27,060,740, $24,961,877 and $2,098,863 from each of the
respective amounts recorded during the year ended March 31, 1994. Approximately
78% of the sales increase was related to the coil products group. This increase
in coil sales was primarily due to the Company's Arkansas coil facility which
became operational in January 1994, and accordingly, operated twelve months in
fiscal 1995 compared to three months in fiscal 1994. In addition, coil sales
benefited from an increase in the average selling price of these products and
from an increase in volume. The tubular products group also reflected an
increase in sales which was primarily related to an increase in sales of pipe
piling and structural products. The increases in cost of products sold and gross
profit were primarily related to the sales increase discussed above. Gross
profit rates were 7.4% and 7.3% in fiscal 1995 and fiscal 1994, respectively.
Selling, general and administrative expenses increased $533,728 from the
amount recorded during fiscal 1994. This increase was primarily related to
direct expenses associated with the Arkansas coil facility. In addition,
variable expenses which were principally related to volume and earnings
contributed to the overall increase in selling, general and administrative
costs.
Interest expense during fiscal 1995 increased $304,379 from the comparable
amount in fiscal 1994. In December 1993, the Company borrowed $4,000,000 to
support the construction and operation of the Arkansas coil facility. In
addition, beginning in December 1994, the Company made borrowings under its bank
line of credit which were utilized to support working capital.
Interest and other income increased $18,124 from the amount recorded in
fiscal 1994. This increase was primarily related to an increase in interest
rates paid on invested cash and an increase in the cash surrender value of
officers' life insurance policies.
Federal income taxes increased $434,823 from the amount recorded during
fiscal 1994. This increase was related to increased earnings before taxes as the
effective tax rates were the same for both years.
During fiscal 1994, the Company was required to adopt Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" and No.
106, "Employer's Accounting for Post-retirement Benefits Other Than Pensions".
The cumulative effect of these accounting changes, net of tax, was to increase
net income $77,000. See also Notes 5 and 6 to the financial statements appearing
herein.
Year ended March 31, 1994 compared to year ended March 31, 1993
During the year ended March 31, 1994, sales, cost of products sold and
gross profit increased $14,677,098, $13,266,784 and $1,410,314, from the
respective amounts recorded during the year ended March 31, 1993. Market
conditions for the Company's products and services improved in fiscal 1994 and
resulted in increased sales of both coil and tubular products. Coil product
sales increased primarily as a result of an increase in the average selling
price per ton and from the opening of the new Arkansas coil facility which
operated three months in fiscal 1994. Sales of tubular products increased
primarily as a result of an increase in pipe manufactured to API standards and
sold to Lone Star Steel Company ("LSS"). In addition, tubular sales reflected an
increase in pipe sold primarily to tubular distributors. The increase in cost of
products sold was primarily related to the increase in sales described above.
Both increased sales and improved gross
14
<PAGE> 17
FRIEDMAN INDUSTRIES, INCORPORATED FRIEDMAN INDUSTRIES, INCORPORATED
profit margins contributed to the overall increase in gross profit. The average
gross profit percentage increased from 6.7% in fiscal 1993 to 7.3% in fiscal
1994. This improvement was principally associated with tubular operations which
benefited from efficiencies resulting primarily from increased production.
Interest expense increased $53,244 from the comparable amount recorded in
fiscal 1993. This increase was primarily related to $4,000,000 borrowed to
support the construction and operation of the new Arkansas coil facility.
Interest and other income increased $46,146 from the amount noted in fiscal
1993. This increase primarily resulted from the sale of machinery and equipment
and from an increase in the cash surrender value of officers' life insurance
policies.
Federal income taxes increased $415,488 from the respective amount recorded
during fiscal 1993 and was related to increased earnings before taxes. Effective
tax rates were the same, year to year.
During fiscal 1994, the Company was required to adopt Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" and No.
106, "Employer's Accounting for Post-retirement Benefits Other Than Pensions".
The cumulative effect of these accounting changes, net of tax, was to increase
net income $77,000. See also Notes 5 and 6 to the financial statements appearing
herein.
FINANCIAL CONDITION, LIQUIDITY AND SOURCES OF CAPITAL
At March 31, 1995, the Company maintained a strong, liquid position as
evidenced by a debt to equity ratio of .37 and by a current ratio of 4.5. In
December 1993, the Company borrowed $4,000,000 from a bank to support the
construction and operation of its new steel processing facility located in
Hickman, Arkansas. The note is an advance promissory note which converted to a
five year term note in December 1994. This note, which bears interest at the
bank's floating prime rate, requires quarterly payments of interest and
principal through December 1, 1999. The Company has available a line of credit
arrangement with a bank whereby it may borrow up to $5,000,000 on a short-term
basis. On April 1, 1995, the line of credit was increased to $8,000,000 and its
expiration date extended to April 1, 1998. At March 31, 1995, the Company had
borrowed $4,000,000 under this line of credit to support working capital. The
Company believes that its cash flow from operations and borrowing capability
under its line of credit arrangement are adequate to fund its expected cash
requirements for the year ending March 31, 1996.
15
<PAGE> 18
FRIEDMAN INDUSTRIES, INCORPORATED
TEN YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
---------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales........................... $ 97,968,805 $ 70,908,065 $ 56,230,967 $ 42,609,330 $ 50,264,851 $ 50,043,949
Earnings............................ $ 2,458,132 $ 1,691,075(1) $ 806,272 $ 483,720 $ 866,259 $ 1,560,701
Current assets...................... $ 25,956,555 $ 21,014,281 $ 16,542,769 $ 15,537,203 $ 16,826,544 $ 16,731,964
Current liabilities................. $ 5,816,334 $ 5,534,143 $ 3,549,495 $ 2,849,637 $ 2,501,178 $ 1,783,375
Net working capital................. $ 20,140,221 $ 15,480,138 $ 12,993,274 $ 12,687,566 $ 14,325,366 $ 14,948,589
Total assets........................ $ 32,074,862 $ 27,184,421 $ 20,491,441 $ 19,619,875 $ 20,936,487 $ 19,042,527
Stockholders' equity................ $ 18,722,781 $ 17,430,337 $ 16,528,543 $ 16,277,792 $ 16,274,914 $ 16,186,557
Earnings as a percent of
Net sales....................... 2.5 2.4 1.4 1.1 1.7 3.1
Stockholders' equity............ 13.1 9.7 4.9 3.0 5.3 9.6
Average number of common and
common equivalent shares(3)....... 5,832,601 5,830,131 5,829,691 5,829,691 5,829,691 5,829,691
Per share
Earnings from operations(3)....... $0.42 $ 0.29(1) $ 0.14 $ 0.08 $ 0.15 $ 0.27
Stockholders' equity(3)........... $3.21 $ 2.99 $ 2.84 $ 2.79 $ 2.79 $ 2.78
Cash dividends per common
share(3).......................... $0.20 $ 0.14 $ 0.10 $ 0.08 $ 0.13 $ 0.19
Stock dividend declared............. 5% 5% 5% 5% 5% 5%
<CAPTION>
1989 1988 1987 1986
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales........................... $ 53,499,476 $ 59,255,966 $ 46,984,967 $ 48,809,898
Earnings............................ $ 1,830,861(2) $ 3,449,368 $ 1,924,726 $ 2,786,352
Current assets...................... $ 19,592,919 $ 18,110,425 $ 36,043,350 $ 35,210,807
Current liabilities................. $ 4,695,397 $ 3,514,402 $ 2,980,992 $ 2,891,111
Net working capital................. $ 14,897,522 $ 14,596,023 $ 33,062,358 $ 32,319,696
Total assets........................ $ 21,803,286 $ 20,498,322 $ 38,519,625 $ 37,851,051
Stockholders' equity................ $ 15,715,223 $ 15,288,709 $ 33,529,670 $ 32,632,731
Earnings as a percent of
Net sales....................... 3.4 5.8 4.1 5.7
Stockholders' equity............ 11.7 22.6 5.7 8.5
Average number of common and
common equivalent shares(3)....... 5,742,141 5,703,003 5,677,440 5,677,440
Per share
Earnings from operations(3)....... $ 0.32(2) $ 0.60 $ 0.34 $ 0.49
Stockholders' equity(3)........... $ 2.74 $ 2.68 $ 5.91 $ 5.75
Cash dividends per common
share(3).......................... $ 0.28 $ 3.82 $ 0.18 $ 0.17
Stock dividend declared............. 5% 10% -- 5%
</TABLE>
- - ------------
(1) Includes the cumulative effect of accounting changes which increased net
earnings $77,000 ($.01 per share).
(2) Includes an after tax loss of $544,500 ($0.09 per share) due to an
extraordinary item.
(3) Adjusted for stock dividends.
<PAGE> 19
[LOGO]
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES
Royal Fasteners Corporation Texas corporation 100% owned
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Friedman Industries, Incorporated of our report dated May 26, 1995, included
in the 1995 Annual Report to Shareholders of Friedman Industries, Incorporated.
Our audits also included the financial statement schedule of Friedman
Industries, Incorporated listed in the response to Item 14(a). This schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
May 26, 1995
Houston, Texas
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from (a) 1995
Annual Report to Shareholders.
</LEGEND>
<CIK> 0000039092
<NAME> FRIEDMAN INDUSTRIES, INCORPORATED
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1994
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 664,527
<SECURITIES> 0
<RECEIVABLES> 8,670,636
<ALLOWANCES> 0
<INVENTORY> 16,558,774
<CURRENT-ASSETS> 25,956,555
<PP&E> 14,114,775
<DEPRECIATION> 8,699,581
<TOTAL-ASSETS> 32,074,862
<CURRENT-LIABILITIES> 5,816,334
<BONDS> 7,000,000
<COMMON> 5,554,858
0
0
<OTHER-SE> 13,167,923
<TOTAL-LIABILITY-AND-EQUITY> 32,074,862
<SALES> 97,968,805
<TOTAL-REVENUES> 97,968,805
<CGS> 90,701,372
<TOTAL-COSTS> 93,929,018
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 399,098
<INCOME-PRETAX> 3,724,442
<INCOME-TAX> 1,266,310
<INCOME-CONTINUING> 2,458,132
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,458,132
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
